A little less than 4 weeks ago, I wrote a blog post exploring the responsiveness of ETFs to changes in rating. Based on that analysis, I concluded that there were 8 ETFs ripe for action. They were:
- INVESCO DYNAMIC MARKET ETF (PWC)
- SPDR S&P 400 MID CAP GRW ETF (MDYG)
- INVESCO S&P SMCP CONSR DISCR (PSCD)
- ISHARES PHLX SEMICONDCTR ETF (SOXX)
- VANGUARD REAL ESTATE ETF (VNQ)
- ISHARES SELECT DIVIDEND ETF (DVY)
- REALITY SHARES DIVS ETF (DIVY)
- FIRST TRUST NATURAL GAS (FCG)
| Bullish Action | Bearish Action |
| SOXX | DIVY |
| PWC | DVY |
| MDYG | VNQ |
| PSCD | FCG |
I concluded that these ETFs were ripe for action based on an analysis of what, historically, has tended to happen in response changes in ratings from yellow to either green or red. If you would like a more in depth explanation of the whole process, please read the previous article.
This post will explore what exactly happened to the ETFs. I would like it recognized that strictly speaking, we are 3 days shy of a full month.
| Ticker | June 4 Close | Dividends | July 1 Close | Total Return |
| SOXX | 265.7 | 0.563 | 267.4 | 0.85% |
| PWC | 87.98 | 0.459 | 88.37 | 0.96% |
| MDGY | 54.98 | 0.126 | 53.66 | -2.17% |
| PSCD | 57.12 | 0.096 | 54.5 | -4.42% |
| EW AVERAGE | -1.19% | |||
| June 4 Close | Dividends | July 1 Close | Total Return | |
| DIVY | 20.93 | 0 | 21.98 | 5.02% |
| DVY | 86.65 | 0.8 | 80.04 | -6.71% |
| VNQ | 81.6 | 0.759 | 80.34 | -0.61% |
| FCG | 8.17 | 0.057 | 7.31 | -9.83% |
| EW AVERAGE | -3.03% | |||
| June 4 Close | Dividends | July 1 Close | Total Return | |
| SPY | 311.36 | 1.366 | 310.52 | 0.17% |
| IWV | 181.32 | 0.599 | 180.98 | 0.14% |
On the downside, I’m quite happy with the results. Looking into the underperformance, while the testing revealed approximately 600 bp of underperformance, we got around 300 bp of underperformance. I am satisfied with that and would “lock in” my rates there (I didn’t actually sell or short anything, so no action required here). I would also recommend looking at price charts of the last month of these ETFs and the last week and see if you think any more have potential of continuing to decline.
On the Bullish-action ETFs, I must confess, I expected a little better. I am not in the least disappointed with these results though, given the fact that markets have been the way they have been. I have been having a hard time investing in the last four weeks, and I will say that my gut tells me that these names need a little more time to play out their story. We might not see the predicted 5% outperformance, but I think that there is still room for upside potential. I think we will also see some of that sooner rather than later, given the jobs report is coming out, as well as other news indicators. To support this, as of 10 AM, PSCD is up 2%, dropping my total loss to only 2.55 % for that name, and MDYG is up 1.8% dropping my total loss to .25%. Already significantly better (and outperforming SPY on the day).
Looking at HIT ratios (how many times I was correct vs incorrect), I had a higher HIT ratio on the downside than the upside (75% vs 50%), keeping in mind that sample size was small. Overall, this HIT ratio was not that far off of the sensitivity test scores as well. Something of interest to note on HIT ratios, and this is very important to recognize in the industry as a whole, is that the best money managers in the industry have HIT ratios right around 50%. The reason that they are the best managers in the industry is because the magnitude by which they are correct largely outweighs the magnitude by which they were wrong. That’s where they make all their money. I’m not saying that I am an expert money manager, but good HIT ratios isn’t a bad way to start down the path!
I had a lot of fun doing this, and will probably do it again in the future. I still have a couple of days to see how the ETFs perform on the upside, and I am excited to see if I can outperform on the upside (or at least not lose money). I have been impressed with some of the ETFs, and might consider holding them a little bit longer term. Then again, maybe I won’t; there are a lot of good opportunities out there!
Karina Kovalcik brings a fresh perspective to investing, having been in the industry for two years. She graduated in 2017 with a degree in Economics from Yale, where she also played soccer. When she makes any blonde mistakes, she usually blames it on all of the soccer balls she’s taken to the head. She joined the Chaikin Analytics team as a Quant and really enjoys crunching the numbers. When she’s not at work, Karina is either running around on the soccer field or spending time in the great outdoors. Karina is a free spirit who loves to travel and experience new foods and cultures; she’s always looking for her next adventure. Follow her on twitter @FinancialyBlond (1 L, no E, and no she doesn’t struggle with spelling).