The Risk On Rally That Keeps on Ticking: Benzinga Reply

Courtesy of Marketwatch/Benzinga.com

It seems like whenever the rally in the S&P 500 is discussed, at least when it is talked about in positive terms, it is associated with favorite Wall Street vernacular such as “risk on” and “animal spirits.”

With the SPDR S&P 500 SPY -0.39% up almost 41 percent in the past three years, including dividends paid, it is not illogical to think risk on has ruled the roost over that time.

A closer examination of sector ETFs paints a different picture. As was highlighted on Monday, the Consumer Discretionary Select Sector SPDR XLY -0.62% has been the standout of the nine sector SPDRs funds over the past three years. Thing about XLY is the ETF has a beta of one against the S&P 500 and annualized volatility of 16.88 percent.

Said another way, XLY is not the most volatile, nor is it the riskiest ETF out there. Simply put, this has been a risk off rally and it has been that way for three years. Returns accrued by sector ETFs prove as much.

High Beta Disappoints…Sort Of. Here is a trivia question: Excluding XLY, which is the only sector SPDR that is perceived as a high-beta play to outpace SPY over the past three years? Answer: The Energy Select Sector XLE -0.13% . XLE has topped SPY by 350 basis points over that time while being 660 basis points more volatile.

The 23.1 percent gain for the Materials Select Sector SPDR XLB -0.85% only look good in comparison to the 19.4 percent gain for the Financial Select Sector SPDR XLF -0.49% . Those ETFs have betas of 1.22 and 1.23, respectively, against the S&P 500.

Goldman Highlights ETF Correlations (XLF, XLK, XLU) Reply

By Benzinga.com

In a note out today, Goldman Sachs GS +1.96% said investors are continuing to increase usage of ETFs as hedging tools, a move that is “creating unintended consequences to their portfolios.” Goldman notes that managers and analysts are increasingly creating less-than-desirable hedges due, in part, to surprisingly high correlations among some sector funds.

“We see high trailing 3-month daily correlations among less-than-obvious pairs of sectors, including: Financials & Industrials, Tech & Discretionary and Materials & Discretionary,” Goldman said.

The recent performances of the various Select Sector SPDR funds indicate that Goldman’s note highlights valid points. In the past three months, the Financial Select Sector SPDR XLF +1.43% is down 9.7% compared to 8.8% for the Industrial Select Sector SPDR XLI +0.86% . The three-month gap is wider between the Technology Select Sector SPDR XLK +1.06% and the Consumer Discretionary Select Sector SPDR XLY +0.98% , which are down 5.8% and 3.3%, respectively. Over the past three months, the Materials Select Sector SPDR XLB +1.16% is down 7.5%.

“Indeed, of the 36 sector ETF pairs we examined, correlations on a 3-year basis are higher than 70% for 31 of the instances, emphasizing the importance for portfolio managers to choose sectors wisely when hedging at specific points in time,” Goldman said in the note.

“How Do You Like Them #Apple(s)? Reply

Courtesy of post-distribution desk notes from WallachBeth Capital’s ETF Execution Expert, Chris Hempstead..

8am Monday June 11

Maybe Apple can solve the world’s problems. We find out today!

As global markets react positively to the news of yet another ‘solution’ to the European debt crisis, a soft poll of peers reveals they are not as cautiously optimistic as the tape might indicate.

The latest announcement of a $125bb rescue package for Spanish banks seems like yet another attempt to hold back an incoming tide with a pile of sand. For those of you who don’t spend time at the beach, it does not work; the water always finds a way around it and eventually consumes it.

With that in mind and more importantly should you be looking for creative ideas to take a contrarian view against what could be a short term rally, and it seems as I write this the markets have thrown in the towel already, there was a nice little article in the WSJ this morning about a little known ETF, HDGE– The Active Bear.

Additionally there was a write up on Seeking Alpha highlighting the highs and lows of HDGE since its inception in January 2011 as well as worthy comparisons versus –SDS-Proshares Ultra Short S&P 500 over both the short and long term.

HDGE is an interesting and unique actively managed ETF as there are no others like it. The fund managers Brad Lamendsdorf and John Delvecchio run the portfolio of short equities. While some other ETFs exist with partial short positions, the HDGE is all short all the time and it is NOT a leveraged fund.

Mega Millions Winner’s ETF Model Portfolio Reply

The “ETF Professor” over at Benzinga has already constructed his ETF portfolio in advance of winning the now, $640 million jackpot scheduled for drawing tonight.  The model portfolio comprises a nice mix representing energy, gold, emerging market, consumer staples, high yield bonds, blah blah blah…

Here’s the verbatim extract courtesy of Benzinga On Line:

Consumer Staples Select Sector SPDR (NYSE: XLP [FREE Stock Trend Analysis]) The Consumer Staples Select Sector SPDR is of course low-beta and almost downright boring in the world of sector ETFs, but just because one has $360 million to play with doesn’t mean that they should be taking on excessive risk. At least one of your new ETF positions should be something for the long-term and something that won’t cause lost sleep at night.

A stake in XLP would make your grandad and Warren Buffett proud. Rounding up a bit, 1 million shares of XLP would run about $34 million, leaving the Mega Millions winner with $325 million, some of which can be devoted to the…

WisdomTree Emerging Markets Equity Income Fund (NYSE: DEM) Of course some of the winnings should go to an emerging markets fund, but we can do better than standard fare such s the Vanguard MSCI Emerging Markets ETF (NYSE: VWO). There’s a lot to like with DEM, including a yield approaching 4% and that the fund is up 12% year-to-date, just be advised Brazil and Taiwan account for over 43% of the fund’s country allocation.

ETFs with Largest Exposure to AAPL: Should You Hedge? Reply

Now that we’ve all forgotten the name of that former derivatives trader from Goldman who enjoyed his 15 minutes of “de-fame”, we can now all re-focus on the brand that’s causing people to line up once again for their latest product offering: Apple Inc.

According to ETF Research Center, 91 ETFs have AAPL in their baskets. The heavy-weighters with more than 10% of assets holding this “iMonster” include IYW (19%), FTQ (17.7%), XLK (17%), QQQ (17%), VGT (16.5%), IXN (15%), JKE (14.8%), ROI (11.5%), ONEQ (10.9%) and IGM (10.2%).

If you don’t own Apple shares, you know someone who does, and if you or someone in your household doesn’t own an Apple device, you might be living in China, where a mere 40 million iPads were sold in 2011, which represented a sliver (11%) of the 350 million PCs, desktops and laptops sold there last year.

Because a household member owns both AAPL stock (purchased at $380 only 4 months ago) and several Apple devices–this blogger doesn’t want to be biased insofar as any buy/sell recommendations (but, if you’re a holder, I’d absolutely recommend layering your positions with a smart option strategy courtesy of a smart option trader.) Instead, we invite you to read a very good, and very objective piece that appeared in the WSJ today, and written by old-friend and former hedge fund trader Andy Kessler.

You’ll want to click “more” for the full article. For those with short attention spans, Kessler concluded with: “One thing I’ve learned from my bruising time on Wall Street is to never get in the way of a freight train. Stocks with momentum keep momentum as mutual funds and index funds load up. They never seem expensive—until at some point the fundamentals subtly shift for the worse. Momentum works in both directions. Pull up the charts for General Motors, Xerox or Kodak on your iPhone.”