I’m not suggesting that anyone do this, but I did find it fascinating to see a financial service like this;
Walter
I’ve looked into launching an ETF. Its ridiculously expensive and the regulatory side of it is also very costly. Your suggested link gives little insight on those costs.
Once you’ve launched you have to market it to find shareholders… Not impossible, but very expensive.
What one can probably achieve is similar to Eddy Elfenbein’s FOCUSED EQUITY ETF (CWS).
https://advisorshares.com/etfs/cws/#cws
Eddy produces annually a list of 25 stocks (since 2005) and holds them for at least one year. At the end of December he replaces 5 of them each year. Below is the performance of Eddy’s lists since 2006 (not the ETF), produced with Stock Factor on P123.
The ETF’s inception date was 9/20/2016. This ETF has kept track with SPY (more or less). It has $22-million in asset value. The management fee is 0.85% providing about $180,000 in income for Eddy. That is not that great, maybe not worth the effort considering expenses of admin personnel, office rental, etc.
Most ETFs with less than $50 Million AUM shut down after 3 years. CWS has $21 Million AUM. So it probably won’t make it for the long term unless there are deep pockets keeping it afloat. It isn’t clear what advantage it has over the S&P index and hasn’t really outperformed. In fact, its performance is a little less than the SP500 since launch.
SteveA
SteveA, what you say is correct. Why $22-million are in this fund is a mystery to me. You would have been better off holding SPY.
The ETF business is about marketing, marketing, marketing, and then some more marketing. So yes, a lot of ETFs don’/won’t succeed.
Actually, as to CWS, the comments here seem more a matter of naive analysis than a bad ETF. From reading the fact sheet, I’d say the ETF’s performance (which is already net of ETF expenses) is intriguing. Since 2016, it has generally tracked a bit to the plus side of SPY notwithstanding what appears to be a strong Quality and stronger Value orientation — approaches not calculated to power ahead of the cap weighted S&P 500 during the strong bull markets we saw during most of its history. Considering where we now are in the interest rate/business/market cycles, a case might be made that this ETF stands a good chance of much stronger relative performance in the days ahead, without necessarily bloodying investors if the unfavorable (for this ETF) persists longer than expected. That’s not a half-bad tradeoff.
Ultimately, though, I never heard of Eddy Elfenbein and judging by the tiny AUM, it seems I’m not alone. So ultimately, weak marketing may not give the ETF a chance to reach a potentially better tomorrow. Then again, if it held on this long, what the heck. . . . . I just looked further. The constituents have the value/quality profiles I expected and rank OK under Chaikin model (designed on p123) but overall, there doesn’t seem to be enough immediate pop to make CWS a here-and-now Buy under the rating it’ now has under the soon-to-be-released extension of our ETF ratings to smaller funds. But I get what the guy is doing, understand and respect past results, and can envision what it would take to make the fund a Buy — and see CWS at least as one for a watch list
I did not say it’s a bad ETF. At least it kept near the performance of SPY despite almost 2% expenses and fees.
If you want to see some bad ETFs you can check out the Vanguard Factor Funds.
Marc is correct when he says that CWS’s performance (which is already net of ETF expenses) is intriguing. What is even more intriguing is that the stocks from Eddy’s annual lists which fall into the bottom 380 Mkt-Caps of the S&P500 have done very well. Perhaps we should follow his lists which are all on his website.
Attached is the relevant screen. Since 2006 this would have produced a 13.6% annualized return vs. 9.3% for SPY. That is a huge difference.
And adding some market timing does not hurt. The annualized return increases to 20%. (see the very bottom picture below)
Very cool. esp if you are holding in tax deferred account
Georg,
Where on his website did you find the historical holdings? (since 2006)
With a cursory read of the document explaining his investment process, it might be worth testing using the P123 Greenblatt ranking and keeping the top 10 with a rebalance period 3 months or less. A 2nd layer might be to add seasonality to reduce the downside vol w/o impacting returns too much (e.g. using low vol rather than Greenblatt in the summer) and a 3rd layer a degree of simple market timing just to avoid the large bear markets (e.g. 100% IEI if SPY drops more than 20%)
Jerome
Jerome,
Check you email.
Thank you Georg
Georg, I’m getting a lower AR for CWS. It’s around 10.3% for me. Here’s my mappings of discontinued and renamed stocks (/from/to/). Do you have the same mappings?
Walter
/BMET/BMET^07/
/RESP/RESP^08/
/JOSB/JOSB^14/
/CLC/CLC^17/
/FIC/FICO/
/BER/WRB/
/LNCR/LNCR^12/
/RAI/RAI^17/
/WXS/WEX/
/CA/CA^18/
/HRS/LHX/
/ESRX/ESRX^18/
/TMK/GL/
/BCR/BCR^17/
/DTV/DTV^19/
/MOG-A/MOG.A/
/LUK/JEF/
/HCBK/HCBK^15/
Walter, here is the screen of Eddy’s buy lists with your and my data combined. It looks like we captured all the stocks. There are no trading costs in the performance. So Eddy is actually doing well, it’s a shame that nobody buys his ETF.
Thanks Georg, Looking good! I’ll checkout your data dump over the weekend.
Walter
Walter, all you have to do is to upload my CSV file into your Stock Factor. Remember Stock Factor data is not overwritten, the new data from my CSV file is additive. So anything you did not capture may be in my data.
You can also print out the beginning of the year historic screen holdings and compare them with Eddy’s yearly lists, which should match. You must use All Fundamentals universe because some of the stocks are not in the S&P500.
Old thread, but I was looking at Eddy Elfenbein’s blog today, and decided to look at the median ranks for his stocks using the P123 Core Rankings, comparing against the SP1500 universe. Elfenbein’s picks usually emphasize quality and safety (low vol), before anything else. No profound change this year, but a slight shift away from quality and towards growth. This year’s picks have the highest median rank for growth among the last 16 years, while the median quality rank is the 3rd lowest.
Interesting topic.
What does not work in the conventional financial world, it is always possible in the blockchain space!
One of the pioneer of this is the Melon protocol which allows users to set up their own fund for as little as 50 USD using Ethereum smart contracts.
Here a walkthrough demo:
https://www.youtube.com/watch?v=Ndl7mU6kZjc
1 Like