Bespoke Investment Group

Recent Asset Class Performance

Below we provide the recent performance of ETFs across all asset classes.  We posted the same table about a month ago and the performance numbers were much different.  There was basically much more green on the board last month.  The last week and month have been red pretty much across the board.  Energy, Materials, and Consumer Discretionary have been the worst performing sector ETFs, while Germany, Italy, France, and Russia have seen the biggest international declines.  China's FXI and India's INP are the only two international ETFs that have gained in the last month. 

 

FAS and FAZ: A Short Seller's Dream?

Since mid-November, the triple long financial ETF (FAS) is down 71% to $10.38, while the triple short financial ETF (FAZ) is down 95% to $4.43.  Over the same time period, the financial index that the ETFs track is up 7%!  Go figure.  The triple leveraged ETFs track the daily return of the indices they follow, and their prospectuses do not suggest using them as long-term investments even if you think a sector or index will go up or down.  Some people have seemingly figured out how to make money off of these triple ETFs, however.  Go short both the triple long and triple short ETF, as they both drift towards zero in volatile markets.  As shown below, short interest has risen to 25 million for FAS and 18 million for FAZ.

 

 

Leveraged ETF Performance

Below we highlight the year to date performance of the various leveraged and inverse ETFs.  Out of the 112 that we track, 29 are up year to date while 83 are down.  As shown below, the 2x long silver ETF (AGQ) is up the most at 65%.  The 2x inverse long-term Treasury ETF (TBT) is up the 2nd most at 51%, followed by 2x technology (ROM), 2x Nasdaq 100 (QLD), and 2x basic materials (UYM).

The 3x inverse financials is down the most year to date with a big decline of 87.29%.  Interestingly, the 3x long financials is also down big with a decline of 60%.  This financial index that these two ETFs track is down 0.24% year to date.  Go figure.

 

 

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Most Overbought ETFs

With stocks rallying around the world, the many ETFs that track various equity markets have moved significantly above their 50-day moving averages.  Below we highlight the most overbought ETFs in relation to their 50-day moving averages.  This list of ETFs comes from our daily ETF Trends report at Bespoke Premium.

As shown, the Russian stock market ETF (RSX) is the most overbought, trading 36.17% above its 50-day.  India (INP) ranks second at 35.72%, followed by the steel ETF (SLX), emerging market Europe (GUR), metals and mining (XME), and Singapore (EWS).  The majority of the ETFs on this list track countries.  The rest are generally concentraded in the commodities area.

  

Preferreds Up 100%, On Verge of Breakout

After getting absolutely crushed in 2008 and the first part of 2009, preferred stocks have made a nice comeback.  Below is a chart of the iShares S&P US Preferred Stock Index ETF (PFF).  Since bottoming in March, PFF is up 106.71% and is trying to break out from its January highs. 

 

Recent Performance of Key ETFs

For those interested in a quick snapshot of how various ETFs across all asset classes have performed recently, below we highlight their 1-day, 5-day, and 1-month performance.  As far as equities go, there was lots of red today, but there's still lots of green over the last month.

 

Year to Date Performance of Leveraged ETFs

In our last post we looked at non-leveraged ETFs, and below we highlight the best and worst performing leveraged ETFs so far in 2009.  Even though the market is trading close to flat year to date, only 27 of the 110 leveraged ETFs that we track are up for the year.  The double long technology ETF (ROM) is up the most at 36.37%, followed by the double long semiconductor ETF (USD), the double long QQQs (QLD), and the double short long-term Treasury ETF (TBT).  The second best performing double short ETF is the Japanese Yen (YCS).

 

The list of the worst performing leveraged ETFs this year shows just how crazy these products can be.  The two worst performing leveraged ETFs in 2009 are the three times financial short and long securities!  FAS (long) and FAZ (short) track the Russell 1,000 financial sector, which is down a little more than 2% this year.  Even though the sector is down, the 3x short ETF (FAZ) is down more than the long one.  And they're both down by huge amounts even though the sector itself is only down a couple hundred basis points.  FAZ is down 82%, and FAS is down 62%!  Wow.

 

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Most Overbought and Oversold Non-Leveraged ETFs

We recently searched all of the ETFs that we follow in our daily ETF Trends report and found the ones currently trading the furthest above and below their 50-day moving averages.  As shown below, many ETFs across all asset classes are trading well above their normal trading ranges.  The private equity ETF (highlighted yesterday) is the furthest above its 50-day at 36.86%.  The metals & mining ETF (XME) ranks second at +34.44%, followed by steel (SLX), financial preferreds (PGF), regional banks (RKH), and the homebuilders (XHB).  All of the ETFs listed above were hit the hardest during the downturn and they are recovering nicely, albeit off of very low bases.

 

Below we highlight the 16 ETFs out of the 200 or so that we track that are trading below their 50-day moving averages.  Natural Gas is the furthest below its 50-day, as it cements its status as the worst commodity on the planet these days.  The list is primarily made up of fixed income and commodity ETFs that have sold off as equities have rallied.

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A Private Equity Pick-Up?

PowerShares has an ETF (ticker: PSP) that tracks private equity companies that are publicly traded.  It's not news to anyone that private equity has been hit extremely hard throughout the financial crisis, and from its peak to trough over the last two years, PSP went down 87%.  Since March 9th, however, PSP is up exactly 100%.  It's also the ETF in our ETF Trends report that is currently the furthest above its 50-day moving average (DMA).  As shown in the 50-DMA spread chart in the second chart below, this is by far the most overbought the ETF has been in its short history.  While PSP has doubled in a matter of months, it still needs to gain 287% if it wants to get back to its all-time highs seen in June 2007.

 

 

IEF and HYG

IEF is an ETF that tracks the price of long-term Treasuries (7-10 years), while HYG tracks the price of high yield (junk) bonds.  During the flight to safety panic that occurred in late 2008, Treasuries soared (yields fell), while junk bonds tanked (yields rose).  This caused high-yield spreads to spike to levels not seen in decades.  As the market has regained some of its footing in the last couple of months, however, spreads have begun to come in, and the price charts of IEF and HYG highlight this convergence.  As shown, IEF (Treasuries) are getting close to testing February support, and the ETF is down from more than $100 to the low $90s.  HYG, on the other hand, has rallied from the low $60s to the high $70s since the March equity market lows.  If IEF breaks this support in the coming days, it will probably be a sign that the current trend will continue on for longer.

 

Country ETFs Overbought

From our daily ETF Trends report at Bespoke Premium, below we highlight various country ETFs and their current trading levels.  An ETF becomes overbought when it trades more than one standard deviation above its 50-day moving average.  The % overbought number is how far the ETF is currently above this initial overbought level.  This is the first time in quite awhile that all country ETFs have been overbought at the same time, and it's a sign that markets around the world are extended from their normal trading ranges.  The Taiwan ETF is the most overbought at 13.32%, followed by Italy (8.34%), India (7.92%), Brazil (7.14%), Sweden (7.08%), and South Korea (7.08%).  Japan is the least overbought at 1.4%.

 

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Muni Bond ETF Makes a Comeback

Investing in municipal bonds is a paradox for investors right now.  On one hand, they are attractive because of their tax-free status since taxes are expected to rise.  On the other hand, with the economy as bad as it is, municipalities could come under duress and be at risk of default.  Based on the performance of the National Muni Bond ETF (MUB) in recent months, it looks like investors are weighing the tax advantage more heavily against default risk.  As shown below, MUB is up 14.4% from its lows last year, and it is trading near its all-time highs since the ETF was released in 2007.

 

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Treasury Inflation Protected Securities ETF

While many people aren't worried about inflation right now, they are worried about it down the road.  Along with purchasing hard assets like gold, investors can buy TIPS (Treasury Inflation Protected Securities) that provide returns slightly above the rate of inflation.  An ETF that tracks the TIPS market is TIP, offered by iShares.  Below is a chart of TIP since the start of 2008.  As shown, the ETF declined for most of 2008.  However, since it bottomed last November, it is up 12.15%, which is considerably better than the 1.2% decline in the S&P 500. 

 

Leveraged ETF Performance During the Rally

Below we highlight the 25 best and worst performing leveraged ETFs during the market rally that began on March 9th.  With the S&P 500 up more than 25% since the low, added leverage makes for some huge gains or losses.  As shown, FAS, RFL, TNA, and UYG are all up more than 100%.  And obviously, all of the leveraged inverse ETFs have gotten crushed, with the 3x inverse financial ETF (FAZ) falling the most at -87%.

 

 

Direxion 3x Financial ETFs Go Certifiably Crazy

The volume on Direxionshares' 3x leveraged bull and bear financial ETFs shows that traders love the product.  However, the ETFs have returned some crazy numbers this year.  The 3x ETFs provide 3 times the daily change of the underlying index, and year to date, the financial index that FAS (long) and FAZ (short) track is down 14%.  However, the 3x long ETF (FAS) is down 68% year to date, but the 3x short ETF (FAZ) is down 65%!  And since the lows on March 9th, these things have returned some whopping numbers.  FAS is up 195%, while FAZ is down $102.78 (or 87%).  Rest assured that a lot of people have gotten burned with these leveraged ETFs, and even though they're meant to track daily performance, their crazy longer-term returns won't go unnoticed forever.

 

 

Key ETF Performance

Below we highlight the 1-day, 1-week, and 1-month performance of key ETFs across all asset classes.  As shown, the last month has been huge for equity ETFs across the globe, as stock indices everywhere have rallied from 20% to 40%.  In the US, the Financial ETF (XLF) has been the best performing sector ETF with a gain of 50%.  Health Care (XLV) has rallied the least at 10%.  Internationally, India (INP) and Italy (EWI) have rallied the most at 38%.  Japan (EWJ) has rallied the least at 19%.  The oil ETF (USO) is up 5.5% over the last month, but natural gas (UNG), gold (GLD), and silver (SLV) are down.  And fixed income ETFs are pretty much flat.  With gains like these in such a short time frame, it wouldn't be a bad thing for stocks to take a breather, as long as the prior lows aren't breached.

  

Leveraged ETF Performance

Below we highlight the year to date performance of the many leveraged and inverse ETFs available to US investors.  But first we want to highlight the 3x ETFs to show their year to date performance versus the indices they follow.  Remember, these ETFs are meant to track the DAILY performance of the underlying indices, but many investors unfortunately hold them as long-term investments, where the performance can be way off.  As shown below, the 3x long large cap ETF (BGU) is down 41.55% year to date while the index it tracks is down 13.99%.  This is right inline with where performance should be.  However, the 3x inverse large cap ETF (BGZ) is up just 26.78%.  Investors hoping for 3x have only gotten 2x in this case.  The same holds true for the 3x inverse small cap (TZA), which is up 41.57% versus the underlying index's decline of 20%.

Where performance gets really bad is in the 3x inverse financial ETF (FAZ).  While the underlying financial sector is down 28.15% year to date, the 3x inverse ETF is up just 0.34%!  Investors who wanted to bet big against the financials this year using FAZ have been correct in their prediction but haven't made a dime on it (well maybe a dime).

 

Below we highlight the 25 best and worst performing leveraged and inverse ETFs year to date.

 

 

Key ETF Performance

Below we highlight the one-day, five-day, and one-month performance of key ETFs across all asset classes.  Today was a strong day across the board, with small caps and mid caps doing slightly better than large caps.  Value stock ETFs actually outperformed growth stock ETFs as well.  On a sector basis, the financial ETF (XLF) was up the most with a gain of 14.86%, and outperforming the second best sector (Industrials) by a wide margin.  Globally, the Russian market ETF (RSX) was up 12.93%, followed by Italy (EWI), and China (FXI).  Commodity and US Treasury ETFs were the only areas of the financial world that were down today.  Looking at the one-month performance of all of these ETFs, however, snaps investors back to the reality that things are still pretty bad out there.

 

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Kick Consumers While They're Down: Oil and Gasoline Diverge

In today's Ahead of the Tape column in the Wall Street Journal, Mark Gongloff focuses on the fact that gasoline prices have stopped going down for the time being.  This is highlighted perfectly by looking at the price charts of the oil and gasoline ETFs.  In the first chart below, we provide a one-year chart of USO (oil ETF) and UGA (gasoline ETF).  Even as oil prices have continued to fall in recent weeks, gasoline has diverged and gone higher.  The second chart looks at the year to date change of the two commodity ETFs.  As shown, USO is down 23% year to date, while UGA is up nearly 23%.  This divergence is not what the consumer needs right now!

 

 

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Country ETFs

Below we highlight ETFs that track equity markets for various countries.  For each ETF, we provide its 5-day change, how far it is trading from its 50-day moving average, and how overbought or oversold it currently is.  For overbought/oversold levels, we calculate how far the ETF is trading above or below the top or bottom of its trading range (using one standard deviation above and below the 50-day moving average as the trading range).  As shown, four countries (Brazil, South Korea, Belgium, Canada) are trading above their 50-day moving averages, and just one (Brazil) is trading in overbought territory.  The Russia ETF (RSX) is trading the furthest below its 50-day moving average, followed by Italy (EWI), Spain (EWP), Mexico (EWW), and Australia (EWA).  Switzerland, Australia, Mexico, Spain, Italy, and Russia are all trading in oversold territory.

   

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Preferreds Get Crushed Again

One asset class that has reared its ugly head again is the preferred market.  While the credit markets seem to have stabilized a bit, preferreds have gotten crushed over the past couple of weeks.  As shown below, the ETF that tracks an index of all preferred stocks in the US (PFF) has dropped sharply from its recent peak, falling 27% since January 6th.  The ETF that specifically tracks financial sector preferreds (PGF) has not surprisingly gotten hit even harder.  PGF has fallen all the way back down to its November lows, and it is down 36.5% since January 6th.  Unfortunately, the November lows are now a not-too-distant memory for preferred holders.

 

 

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Leveraged ETF Year to Date Performance

Below we highlight the best and worst performing leveraged and short ETFs year to date.  As shown, the 3x inverse Financial sector ETF (FAZ) is up the most at 60%, followed by the two 2x inverse Financial sector ETFs, RFN and SKF.  The inverse MSCI EAFE (Europe, Asia, Far East) ETF ranks 4th with a gain of 25%.  The 2x inverse oil ETF is the only commodity-related name on the list of winners, while the 2x inverse Euro (DRR) is the only currency-related name.  The list of losers pretty much consists of the inverse of the winners, with the 3x long Financial sector ETF (FAS) leading the declines.

 

 

Leveraged and Inverse ETF Winners and Losers

Below we highlight the best and worst performing leveraged and/or inverse ETFs since the S&P 500 made its recent bottom on November 20th.  With the S&P 500 up more than 20% since November 20th, there's no surprise that the entire list of the biggest gainers is made up of long ETFs, while all ETFs in the list of losers are inverse (short).  As shown, the 3x smallcap ETF (TNA) is up the most since 11/20 at 82%, followed by 2x basic materials (UYM), 2x telecom (LTL), and 2x midcap growth (UKW). 

On the downside, the 2x inverse real estate ETF (SRS) has declined the most at -78%.  SRS is followed by 3x inverse financials (FAZ), 3x inverse smallcap (TZA), and 2x inverse China (FXP). 

 

 

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Recent Key ETF Performance

Below we highlight the daily, weekly, and monthly performance of key ETFs across all asset classes.  Up until today, you would have been hard pressed to find much red in the table, but today's declines in pretty much everything unfortunately fill out the red/green color scheme well.  US equities were down about 3% across the board today, with Energy (XLE), Financials (XLF), and Industrials (XLI) getting hit the hardest.  Internationally, India (INP) was down the most with an 8.90% decline.  China (FXI) and Russia (RSX) weren't far behind with declines of more than 7%.  And commodity ETFs didn't fare any better.  The oil tracking ETF, USO, was down 10.68%, while DBC was down 5%.

Over the last month, ETF returns have generally been positive, although the S&P 500 tracking SPY ETF is down 36 bps.  Midcaps have performed the best relative to large and smallcaps, and Energy and Health Care have been the best performing sectors. 

 

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Junk Soars Again

The iShares high yield corporate bond ETF (HYG) is up big once again today.  As shown below, HYG is up 3.64% on the day and 25.64% since its low on November 20th.  Many equity investors are waiting for risk-taking to return to the fixed income markets before taking risks in the stock market.  Based on the action in junk bonds over the last month or so, the risk trade seems to be coming back.

 

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