World Beta Blog

I’ve been getting a lot of emails asking for more information on our upcoming ETF.  The NYSE launch date is projected for mid-October with the ticker symbol GTAA.

Now that we are finally out of the quiet period I thought I would say a few words about the portfolio and approach of the Global Tactical Asset Allocation (“GTAA”) strategy.   Some of the more interesting features are below.

Global Diversification – The GTAA strategy targets 50-100 ETFs in all of the major asset classes including stocks, bonds, real estate, commodities, and currencies.  This approach allows for each asset class to be examined in more granularity than the published models (think spreading the MSCI EAFE into Japan, UK, Germany etc and Commodities into Agriculture, Energy, etc and the S&P500 in Tech, Energy, etc.)

Trend Following – The GTAA strategy attempts to be invested in asset classes that are appreciating and out of asset classes that are declining.

Risk Management – The GTAA strategy attempts to control risk by using multiple timing algorithms across various timeframes in an attempt to lower volatility and drawdowns.  Asset classes can be over/underweighted based on other momentum, mean reversion, and fundamental factors.  In addition, we have the ability to trade both futures and options in an attempt to hedge the portfolio.

Shareholder Friendly – We have contractually committed to lower the management fee as the AUM of the ETF increases.  The management fee will decline according to set breakpoints.  This is one of the features I really campaigned for.  It is something that is commonly seen in the separate account space, but rarely if ever in the public fund space (at least in writing).  Some funds say they will reduce their management fees as they grow but never do.

Conflicts of Interest -The portfolio manager will have a significant amount of their net worth invested in the Fund. (In my case it will be 90%+.)

To learn more about the GTAA ETF, info can be found on the AdvisorShares website.

Email me if you have any more questions!

The Economy and the Stock Market – O’Shaughnessy

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A number of sites/blogs have been updating their offering to a free/premium – congrats to the excellent CXO with their new launch.

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Kudos to Jeff Matthews for challenging this uninformed quote from Taleb on Buffet vs. Soros.  I mean, there are two books out on how Buffet trades including the upcoming Warren Buffett and the Art of Stock Arbitrage: Proven Strategies for Arbitrage and Other Special Investment Situations by none other than Mary Buffett.  (The other being Altucher’s Trade Like Warren Buffett.)

“I am not saying Buffett isn’t as good as Soros,” he said. “I am saying that the probability Soros’s returns come from randomness is much smaller because he did almost everything: he bought currencies, he sold currencies, he did arbitrages. He made a lot more decisions. Buffett followed a strategy to buy companies that had a certain earnings profile, and it worked for him. There is a lot more luck involved in this strategy.”

—Bloomberg Businessweek, September 25, 2010

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Probably three of the more amusing paragraphs I’ve read in awhile!  From BWeek

The “new normal” will be an environment where “future investment returns will be far lower than historical averages,” Gross added. “If bond investors believe that the resplendent and abundant capital gains of the past 25 years will be duplicated from yield levels of 2 to 3 percent — well, they just haven’t been to Japan, have they?”

Ken Fisher, the billionaire chief executive officer of Fisher Investments Inc., said today that the concept of a “new normal” is “idiotic,” pitting him against Gross and Pimco Chief Executive Mohamed El-Erian, who coined the term to describe a world of high unemployment, more regulation, and the shrinking importance of the U.S. in the global economy. Gross, the founder a Pimco, and El-Erian serve as co-chief investment officers.

“We are chimpanzees with no memory,” Fisher said at the Forbes Global CEO Conference in Sydney. “The next 10 years are going to be just as good as the 1990s. The problems in this current environment we think are so different, and so new and so unique. It’s the same stupid old normal we’ve always had. We’ve got a great future.”

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Fall is in the air!

Just finished a great trip to Chicago and will be in NYC for the always fantastic Value Investing Congress coming up October 12-13.  (Although I do need to try and attend the Ira Sohn the next go around as well.)  I should be in NYC all of that week.

I will also be making trips to Seattle and South America in November.

As always, drop me a line if you want to get together!

Klarman (who is long gold):

“At our recent investment team retreat, virtually every speaker – many of the leading thinkers in the markets and in business-was of the opinion that terrible problems await in terms of paper money and that gold is an asset investors should seriously consider.”

My experience was very similar at a recent conference I was speaking at this weekend – a number of attendees came up and asked me about gold.

I literally can’t find a single manager that is currently bearish or short on gold or gold stocks.  Please leave a comment if you know of a fund or manager that is bearish or short.

A list of bulls below:

Lots of cool innovation going on in the online finance space.  A few interesting links:

Asset Class Backtester

The website also lists free sources for the data as:

Many thanks to Norbert Schlenker at Libra Investment Management for collecting the data that this calculator uses. Original public data sources include: Bank of Canada, BC Government Statistics, Canadian Institute of Actuaries, Economagic.com, Financial Post, Globe & Mail, globefund.com, Kitco, Libra Investment Management Inc., MSCI, Prof. Werner Antweiler (UBC), Scotia Capital, BMO, Standard & Poors, Statistics Canada (Table 326-0001), DH&A, and Wilshire Associates.

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Mutual fund to ETF Converter

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Ability to backtest moving average strategies.

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If I was an economist I’d just announce every recession was over about a year after it began.

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David Tepper goes balls to the wall

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Private equity doesn’t outperform stocks.  Bottom 75% of funds underperform public stocks.

From a post back in July – I will update this when all the funds report.

A number of real money funds report their fiscal year ending June 30th.  (A day does not go by where I do not get a confused reader emailing in asking why the tables in my book look funny because they miss the June fiscal year end on some tables.)

Below are some asset classes and their returns over the past year.  We found that an equally weighted 5-asset class portfolio did a pretty good job of approximating the average endowment/institutional fund performance (while the Harvard and Yales of the world did about 3-4% better per annum).  The recent paper from Mladina benchmarked the returns to some more granular indices with leverage – we’ll see if we can get an estimate for his model too.  It looks like the funds should be coming in around mid-teens:

CalPers 11.4%

Harvard 11%

Yale 8.9%

Columbia 17%

Penn 13%

Dartmouth 10%

MIT 10%

Stanford 14.4%

Here is a nice interview with Seth Klarman and Jason Zweig from the FAJ (at MarketFolly and PragCap).

Klarman is not the best performing clone over on AlphaClone, but his top 10 long holdings are still up a whopping 29% YTD.

Great quote from article:

“…the prevailing view has been that the market will earn a high rate of return if the holding period is long enough, but entry point is what really matters.”

“In our view there is no such thing as a value company.  Price is the essential determinant in every investment equation.  At some price, every company is a buy; at some price, every company is a hold; at at a still higher price every company is a sell.  We do not really recognize the concept of a value company.”

From a Deutsche Bank white paper:

“We took risks.  We knew we took them.  Things have come out against us.  We have no cause for complaint.”

Gold is universally loved as far as I can tell (when Pratt and the hipsters like it that makes me nervous).  Can anyone leave a comment on money managers that are currently short or bearish on gold?  I don’t know any.

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It is pretty well established that markets mean revert from returns of 2-4 years prior.  While I am writing a much longer and thorough research piece on mean reversion, I thought I would pass along this little study in the meantime (I know I know blogging has been very light lately).  With the GTAA ETF coming out next month some research has been put on the backburner.

All this study does is look at the worst performing asset class from 3 years ago and buys it for a one year hold.  Repeat again next year.  Beats buy and hold by 6% a year.  And guess what asset class was the worst 3 years ago?  Yep, that would be REITs up a whopping ~20% YTD.

(Data source: Global Financial Data)

US Stocks – S&P 500

Foreign Stocks – MSCI EAFE

Bonds – 10 Year US Govt

Commodities – GSCI

REITs – NAREIT

I will be in Chicago next week at the M* ETF Conference Wed Sep 15th – Fri Sep 17th.  Drop me a line if you want to meetup.

I will also be in South America in mid to late November (Santiago, Buenos Aires, and possibly a few other cities TBD).  Again, drop me a line if  you are around!

There are a few more trips lined up (NYC, Denver, Florida) and I will update the blog with dates when confirmed.

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I have recently gone back and reviewed nearly all of the 800 odd posts on WB over the past few years.  I’ll be writing some longer form analysis on some of the topics in our upcoming research newsletters, but below are a few idea I came across that I could be updated short form…

When S&P originally constructed their BuyWrite and PutWrite Indexes they did so with a 1988 start date.  I thought that was a little odd, and you can see some of the conversations I had with them back in 2007. They have now since included data back to 1986.

Below is a table and equity curve with data over the whole period FWIW.

Forgot labels:

SPTR = S&P500 Total Return

BXM = BuyWrite Index

PUT = PutWrite Index

CAGR

StDev

Sharpe

MaxDD

(And by the way, if you REALLY want to get interesting start playing around with these different indexes and some basic timing and volatility trading rules…)

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Another recent post was one on mean reversion after really bad months (like the one in May).  More background here, as well as subsequent performance below:

ETF, May Returns,  July-Aug Returns,  Annualized

VTI,  -7.89%,  1.98%,  12.48%

VEU,  -10.90%,  6.96%,  49.71%

VWO,  -9.18%,  7.40%,  53.44%