There is a debate of sorts floating around that started when Morningstar put out an article called The Worst New ETFs of 2007.There have been follow ups from ETF Trends, IBD and IndexUniverse. That last one includes what could sophisticatedly thought of as a pissing match between the Morningstar author and yours truly that is kind of funny.
The Morningstar foray into ETFs can be summed up with the following.
One of the worst funds for 2007 was the SPDR China (GXC). The article says "These markets (he means China) have been smoking in recent years. Not surprisingly, they look rich to our eyes." Ok well in past dumpings on these guys I have talked about their applying bottom up as belying a thorough lack of understanding of how to study and use ETFs.
So China looks rich? Was it rich when Morningstar gave iShares China (FXI) the thumbs down on January 4, 2005 when they said the "Chinese market is coming off a hot streak and that's often the wrong time to invest in an emerging market." Their next report on FXI was on 11/22/05. Between those two FXI was up 14% versus 6% on SPX. In the 11/22 report they gave it another thumbs down. The title (you can click through to see it) says it all and they suggest buying PowerShares China (PGJ) or Fidelity China (FHKCX) if you have to own China individually which they didn't think was a great idea.
From that report to the next report on 12/28/06 FXI went up more than 80%, PGJ was up 55%, FHKCX was up 30% while SPY was up about 12%. On that 12/28 report the thumb down was that "China aficionados should note that impressive economic growth and clout don't always translate into superior fund performance." The report then cites some three, five and ten year data for Asian funds which strikes me as wildly irrelevant for the China theme. From 12/28 to the next report on March 30, 2007 (which also reads as being very negative) FXI finally lagged the S&P 500 dropping 9% in that three month period but of course FXI was up about 50% in calendar year 2007 even after a brutal ride down from the peak in October.
(Administrative note: the M-star article links don't work you can click here for the FXI archive)
Despite the sheer madness of buying a country fund none of these reports contain, you know, information about the actual country of China. In deciding yeah or nay on a country I think you might want to take a peek at some data on the economy, growth and whatever else you think is relevant to, I don't know, the economic fortunes of China before you focus on the expense ratio or the number holdings of some fund.
Bottom up has never made a lick of sense to me for ETFs. The above example with China was the first one I looked at and I doubt it is the only one where they swung and missed repeatedly. I do not know if Morningstar has a motive for drawing the same conclusion so often on volatile funds or if their understanding is really this bad. One thing is clear that with their resources they should and could dominate ETF coverage and commentary. I don't know if the crew they have needs to be taught how to look at these things, replaced altogether or whether they should stop trying and just buy IndexUniverse.
If you read the links above from the other sites weighing in on the original article you will see that the general opinion of Morningstar is very low. They don't get it. There is no telling them they don't get. Any encounter I have ever had with anyone there (two or three time only) there has been no introspection as to the possibility that they might be missing something. I will repeat, this is a space where they should absolutely be cleaning house but instead they are frittering away the opportunity.
I was saddened to hear of Sir Edmund Hillary's passing. Any mention of Hillary is incomplete without mentioning Tenzing Norgay.
18 comments:
Not long after the inception of IU I happen to correspond w/ the youngish looking but quite sharp editor and recall hoping that IU would be "the" morningstar of etfs. And, I thought maybe that I didn't sound so intelligent myself with such a wish,or something just not right with the sentiment.
More to the commentary of process on country due diligence...Roger, you make it look easy. Can you reference your drill as I think you have discussed it before. As the equities mkt is more global it would be fantastic to have a single link/resource that ties together macro data, evaluation, and country etfs. Some folks rave about the mag, the Economist. I see a lot of noise in the data and even professional economists have trouble predicting. Many of us, not too many yrs ago, would have shuddered at the thought of routinely having half or more in international exposure. Time is coming when even fido is going to let me buy a stock on the london exchange at 3am...and I did hear this straight from fido just last week.
jasper
lol, given the tens of dollars available through blogging i am not sure that my expanding my web presence is likely, unless my wife's secret trust fund kicks in (humor attempt).
As far as making it look easy, TY, but one thing is true, just about every other country has far fewer moving parts and is much easier to assess.
As US based investors we are trying to navigate the most complicated market on the planet, well maybe Japan is trickier?
I have never like Japan as an investment destination and can't envision when I would. Every year very smart guys lay out very compelling cases and they get it wrong, 2005 (or was it 2004?) being the exception that proves the rule.
Roger, I am a lurker, but read your blog regularly, as I find it quite helpful.
In trying to determine why ESRX has been down trending the last few days I discovered via news re Squeeze Trigger that it is undergoing a short squeeze, though I was unable to access the Squeeze Trigger site. Could you or one of your readers enlighten me on Squeeze Trigger? This is the passage I found:
SqueezeTrigger.com has built a massive database that collects, analyzes and publishes a proprietary SqueezeTrigger Price for each stock that has been shorted. The data has then been integrated into an automated trading platform which can be used to connect to a live online broker and automate your trading of short squeeze events. It is extremely powerful with lightening fast execution at a very low price. Both the trading software and SqueezeTrigger data feed are available at http://www.squeezetrigger.com .
I also read this, though it was of no use to me:
To access SqueezeTrigger Prices ahead of potential short squeezes beginning, visit http://www.squeezetrigger.com .
i have never heard of that site. a short squeeze implies that the shorts are getting squeezed by a lift in the stock. I don't follow the stock you mentioned at all.
Who was the first person to put two feet on the top of Mount Everest?
.
.
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Radhanath Sikdar !
A surveyor/mathematician commissioned to measure the height of the mountain.
In 1852, over 100 years before Norgay and Hillary reached the summit, Sikdar using trigonometry measured Everest to be exactly 29,000 feet but believed that his sponsors would think he had simply made a guess - so he publicly declared it to be two feet taller at 29,002.
Sikdar - the first man to put 'two feet' on Mount Everest.
i've never heard that story before. thank you
Re ESRX, it is health care and has performed well. Here is a description:
Express Scripts, Inc. provides a range of pharmacy benefit management services in North America. It offers retail network pharmacy management, home delivery pharmacy services, benefit design consultation, drug utilization review, formulary management programs, disease management, and compliance and therapy management programs. The company also provides various specialty services . . .
i've heard of it and know what it does, i just don't follow it.
FYI - Express Scripts has been getting some large accounts, recently the STRS OH (Teachers Retirement system) and PERS OH(Public Employees Retirement Sustem of OH) switched from Caremark to Express Scripts.
Since I am on that gravy train, I can relate that Express Scripts was right on target with appropriate mailings, transition prescriptions and prompt service. I was not used to that with Caremark.
A good company is not necessarily a good stock, but in the highly competitive world of prescription service, I was impressed.
Totally off the subject of today's blog but I want to thank Roger for his daily postings.
Mostly from his input I concluded that it might be safer to anticipate a Bear market so I went to cash in December and have moved this week to 25% BWX, 35% various ProShares shorts and the balance in various long ETF's that don't seem all that connected to US Markets. So, with the Dow down 246 today I am up 0.74% for today.
Thanks for the help.
Hello Roger
The news that Taiwan is about to have elections that will put in place a goverment that is friendly to china,,,is there a play here?
You would think a safer situation for business would start grass growing..
Mac
I have a reverse index ETF question: I have recently been buying SDS as a cushion to the market's downward projectary. Do these types of ETFs have the ability to deal with large influxes of cash as more people learn of their possible utility. do they have NAV issues Thanks?
RogerB, thanks for the kind word. Know that you will lag a rocket up. I take it that you are long 65% including BWX so I would expect in a downturn you will do well but that in a big crazy you would lag. Think about that so in case it happen you don;t have an emotional swing the other way--if you are prone to emotion.
Taiwan, EWT has a lot of tech and a lot of yield. It seems that if we are in a bear it will be unkind to tech so it might be unkind to the manufacturers in places like Taiwan. I have not looked seriously at individual issues from Taiwan b4 but one or two people own EWT.
The important thing I would convey about this is I am underweight tech versus the index.
Inverse funds don't seem to have real problems with cash coming in. There are a couple of issue that some will care about. The traded until 4:15. sometimes the futures do things in that 15 minute window that moves the inverse funds and so the close may look odd or this could impact the open the following day.
I would tell you that if you need a perfect to the penny hedge you will be disappointed. To my mind SDS captures the benefit of smoothing out the decline somewhat.
Roger,
Regarding M* and ETF's...I've been a premimum subscriber to M* for a bit over 3 years, and like most things, they have their plusses and minuses. I agree with you on the ETF thing....even in their individual company analysis, they don't seem to give a lot of weight to sector analysis...focusing almost soley on company-specific issues. I've got a couple of "old style" CEFs in my portfolio, and they used to have a message board on the site dealing with CEFs, which was populated by some pretty knowledgeable people, but they dropped it when revamping the site a few months back.
Jan
I subscribe for the portfolio tools.
As far as the stock analysis, I've never looked at it but bottom up value tilt at least makes some sense. There are plenty of people that have success as bottom up value. I do not know how good their stock opinions are or are not.
Ok, ok....now I believe your bear market theme. Enough! You can turn positive any time now.....
g
lol.
nothing more than a normal cycle...if that helps???
For Jan--The Morningstar CEF board is still there, but not quite as active as it used to be. I think maybe too many folks got stung in the 4th quarter. Keep looking; their navigation is really difficult now.
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