Silicon Investor - backstage

[skinowski] [X] How it is supposed to be https://t.co/oXJZp35eyz— Elon Musk (@elonmusk) May...

skinowski — 5/19/2026 9:07:37 AM

[X]

How it is supposed to be https://t.co/oXJZp35eyz
— Elon Musk (@elonmusk) May 18, 2026

[/X]

[skinowski] Seasonal Stats Message 35375682

skinowski — 12/31/2025 7:27:14 AM

[skinowski] [X] Here's the S&P 500's Average Daily Return and Percent of Days Positive, for...

skinowski — 12/24/2025 9:13:00 AM

[X]

Here's the S&P 500's Average Daily Return and Percent of Days Positive, for every calendar date

December 26 stands out! pic.twitter.com/i5nQerjdIX
— Subu Trade (@SubuTrade) December 24, 2025

[/X]

[skinowski] Seasonality of future 3 month returns Message 35306062

skinowski — 10/23/2025 8:53:47 AM

[skinowski] [X] AVGO has been losing ground against NVDA for about 10 yearshttps://t.co/VV3...

skinowski — 6/6/2025 3:14:54 PM

[X]

AVGO has been losing ground against NVDA for about 10 yearshttps://t.co/VV3hvzi8zq
— Olskis1 (@Olskis1) June 6, 2025

[/X]

[skinowski] Bitcoin, seasonal course, determined over 10 years[graphic]By the end of Septemb...

skinowski — 3/5/2025 10:52:02 AM

Bitcoin, seasonal course, determined over 10 yearsBy the end of September, it is only a relatively moderate upward trend. Source: Seasonax

As you can see, Bitcoin usually goes up or sideways. There are hardly any phases of weakness.

This strong increase in the past also makes it difficult to clearly recognise potentially weak phases.

[skinowski] Edit

skinowski — 9/12/2024 9:07:07 PM

[skinowski] Oil seasonality [X] Could crude oil soar? Absolutely. Is seasonality a roadmap...

skinowski — 7/2/2024 12:28:43 PM

Oil seasonality

[X]

Could crude oil soar? Absolutely.
Is seasonality a roadmap? Absolutely NOT.
Still, I am not inclined to chase crude oil right here. Not saying it is doomed to fall, just that the odds may be better elsewhere. @sentimentrader pic.twitter.com/WmECKpUs1X
— Jay Kaeppel (@jaykaeppel) July 2, 2024

[/X]

[skinowski] XLE seasonality [X] History suggests "Yes" (i.e., price will fail). Could ener...

skinowski — 7/2/2024 9:14:48 AM

XLE seasonality

[X]

History suggests "Yes" (i.e., price will fail). Could energies rally sharply instead? Absolutely. But this is generally not the best time of year to bet heavily on energy. @sentimentrader https://t.co/BNBD6f65fR pic.twitter.com/4hl38eaPR5
— Jay Kaeppel (@jaykaeppel) July 2, 2024

[/X]

[skinowski] June the strongest month for QQQ. Also, highs for the year. [X] An opportunity...

skinowski — 6/22/2024 9:48:14 AM

June the strongest month for QQQ. Also, highs for the year.

[X]

An opportunity to invoke:
Jay’s Trading Maxim #150: Sometimes the hardest thing for an investor to do is nothing. https://t.co/DQ9GNYZ2QQ
— Jay Kaeppel (@jaykaeppel) June 22, 2024

[/X]

[X]

Since 1920, the S&P 500 annual high occurred in June just one time. @sentimentrader https://t.co/EykmNC34JU
— Jay Kaeppel (@jaykaeppel) June 22, 2024

[/X]

[skinowski] Seasonality [X] Several market sectors are entering significant seasonal perio...

skinowski — 6/13/2024 12:20:38 PM

Seasonality

[X]

Several market sectors are entering significant seasonal periods. @jaykaeppel's analysis explores the seasonality factor in these sectors and indicates that traders might consider looking for short-term opportunities. pic.twitter.com/E3VybU6oUt
— SentimenTrader (@sentimentrader) June 13, 2024

[/X]

[skinowski] Days of the month / year swingtradesystems.com

skinowski — 6/13/2024 11:00:53 AM

[skinowski] Yahoo article on commodity ETFs by 2024 performance finance.yahoo.com

skinowski — 4/20/2024 9:48:29 AM

[skinowski] QQQ for SPY cxoadvisory.com

skinowski — 3/5/2024 5:28:42 PM

[skinowski] XLI:XLU leading? [X] 4th quarter 2023 clues from 12/5/2023 @sentimentraderhttp...

skinowski — 3/2/2024 11:43:43 AM

XLI:XLU leading?

[X]

4th quarter 2023 clues from 12/5/2023 @sentimentrader https://t.co/sOPUjIujno
— Jay Kaeppel (@jaykaeppel) March 2, 2024

[/X]

[skinowski] BTC seasonality [X] In all candor, I still don't really understand what I own ...

skinowski — 2/27/2024 9:34:13 AM

BTC seasonality

[X]

In all candor, I still don't really understand what I own if I buy Bitcoin. Still, I can recognize a trend when I see one. A small position in GBTC at least gets a "toe in the water." @sentimentrader https://t.co/UPFrjESd7b pic.twitter.com/U60ogH5J23
— Jay Kaeppel (@jaykaeppel) February 27, 2024

[/X]

[skinowski] Del

skinowski — 1/21/2023 4:35:44 PM

[skinowski] ‘Deadly serious’: U.S. quietly urging Taiwan to follow Ukraine playbook for coun...

skinowski — 5/21/2022 8:39:56 AM

‘Deadly serious’: U.S. quietly urging Taiwan to follow Ukraine playbook for countering China

politico.com

Yet Beijing is also learning lessons from Russia's botched invasion.

Discussions about reshaping Taiwan’s military are intensifying as President Joe Biden heads out this week on his first trip as president to Asia. He will make stops in South Korea and Japan, where he will meet with the leaders of the other nations in the Quad security pact: Japan, India and Australia.

While Biden is not visiting Taiwan — the most likely flashpoint of a conflict — the China problem looms over the trip. The U.S. and its Pacific allies have been alarmed by Beijing’s tacit support for Moscow since the invasion, and U.S. officials believe the conflict has influenced China’s calculations about how and when to attempt to take control of Taiwan.

“Clearly the Chinese leadership is trying to look carefully about the lessons they should draw from Ukraine about their own ambitions in Taiwan,” CIA Director Bill Burns said this month. “I don’t think for a minute it’s eroded [President Xi Jinping’s] determination over time to gain control over Taiwan, but I think it’s something that’s affecting their calculation about how and when they go about doing that.”

While the United States does not formally have diplomatic relations with Taiwan, the two governments maintain tight security ties under the 1979 Taiwan Relations Act. Washington has long supported Taipei’s self-defense capability with arms sales and a close military relationship — the two forces and Taiwanese cadets study at elite U.S. military academies.

Russia’s Feb. 24 invasion of Ukraine was a wakeup call for the Taiwanese people. show a significant increase in citizens who believe a Chinese invasion is likely, compared with surveys taken before the invasion. There is also more support for strengthening Taiwan’s self-defense, Hsiao Bi-khim, Taiwan’s official representative to the United States, told POLITICO in an interview Tuesday.

“We in no way want to see that same type of pain and suffering replicated in Taiwan,” she said. “The government as well as the public has to invest our efforts in our self-defense or preparedness. And I think there is a general acknowledgement that this is a priority right now.”

At the same time, the U.S. effort to reshape Taiwan’s military has taken on new urgency since the Russian invasion, officials and experts said. U.S. officials are pointing to Ukraine’s success with Stinger anti-aircraft and Javelin anti-tank missiles, as well as its spirited corps of civilian volunteers, as proof that the strategy they have long endorsed works.

“The Ukraine situation validated some long-standing steps we’ve been taking in Taiwan,” said one DoD official, speaking on condition of anonymity to discuss a sensitive topic.

Top U.S. military officials have said in recent weeks that Taipei is learning critical lessons from Russia’s invasion of Ukraine that the island could apply to a Chinese attack. Lt. Gen. Scott Berrier, director of the Defense Intelligence Agency, noted in a recent hearing the importance of small unit tactics, a noncommissioned officer corps, and effective training “with the right weapons systems.”

“I think they’re learning some very interesting lessons from the Ukrainian conflict, like how important leadership is,” Berrier said.

The Pentagon and State Department declined to comment for this article.

‘Asymmetric’ weapons

Since 2010, Taipei has spent more than $23 billion on U.S. weapons, primarily large, conventional arms such as F-16 fighter jets and M109A6 self-propelled howitzers. But in recent years Washington has been urging Taipei to buy different types of weapons geared for so-called asymmetric warfare — smaller, more mobile ones that are difficult for a larger foe to target and counter.

On the heels of Russia’s invasion, the State Department in a March letter to purchase MH-60R Seahawk helicopters, designed for hunting submarines — a move experts said U.S. officials would not have made before the Ukraine invasion.

Similarly, the U.S. Army in a separate March letter urged Taiwan to buy an upgraded version of the howitzer Taipei had requested years ago. Meanwhile, officials plan to refuse any request for the E-2D Advanced Hawkeye early warning and battle management aircraft, former and current officials said.

Instead of these weapons, the U.S. believes Taiwan should invest in more mobile, cost-effective systems such as Stingers and Javelins, as well as sea mines and coastal anti-ship missiles.

“We are leaning on them in a way that we’ve not done in the past, in a way in fact that we’ve gone out of our way not to do,” Friedberg said. “The decision [to] turn down the Taiwanese request for the MH-60 helicopters, what that says to me is that OK, we are really deadly serious about this.”

These moves appear to reflect a shift in policy by the Biden administration. Deputy Assistant Secretary of State Mira Resnick and her colleagues briefed the U.S.-Taiwan Business Council in March that the administration would no longer support arms sales for Taiwan “outside their definition of ‘asymmetric’ defense,” according to a Tuesday press release from the council.

The council noted in the release that the administration “appears to have canceled” the Seahawks , Hawkeyes and M109 mobile artillery “for not meeting their ‘asymmetric’ criteria.”

The council pushed back on the new policy, noting in a Monday letter to Resnick that “far from accelerating Taiwan’s deterrent capabilities, we fear that the envisaged “asymmetric” focus for Taiwan security assistance will result in policy confusion and a substantial slowing of overall arms sales.”

In particular, the council expressed concern that the asymmetric policy focuses too much on a “D-day scenario,” leaving China free to continue its “gray-zone” operations — those short of all-out war, for instance flight intercepts and disinformation.

USTBC President Rupert Hammond-Chambers also pointed to America’s longstanding policy of “strategic ambiguity” about whether and how the U.S. would come to Taiwan’s aid in the event of an invasion, according to the release.

If the Biden administration “intends to dictate specific arms sales to Taiwan,” Hammond-Chambers urged some “clarity on when and where the U.S. would be willing to step in and fill the new gaps.”

Culture shift

Taiwan’s military may need a culture shift, as well as new weapons. Gen. Mark Milley, chairman of the Joint Chiefs of Staff, said in an April hearing that an important lesson Taiwan could draw from Ukraine is “a nation in arms.”

“If your opponent tries to invade you, and every military age man [and] woman is armed, and they have a little bit of training, that can be a very effective use,” Milley said.

Behind the scenes, U.S. officials are urging Taipei to modernize its reserve institution and lay the groundwork for mobilizing the population in the event of an invasion, officials said.

Taiwan late last year established an , which is responsible for the mustering of reservists during wartime as well as disaster relief. The agency is drafting an “all-out defense handbook” that will increase the public’s knowledge of military response efforts for wartime and peacetime emergencies, officials said at the time.

But Taiwan’s military is not well integrated with its civilian population, a disconnect that has roots in Taiwan’s long history of martial law. Many citizens still have physical and mental scars from Taiwan’s period of “White Terror,” when those believed to be anti-government were rounded up and imprisoned — thousands were executed.

Over the past few decades, Taiwan has gradually reduced its military service requirement from two years to just four months, said Bonnie Glaser, an East Asia analyst at the German Marshall Fund of the United States. She noted that “it is not considered to be really serious” and that some Taiwanese refer to it as “summer camp.” The problem is compounded by the fact that the active-duty military is not keen to work with the reserve force, which is seen as insufficiently trained, she added.

Taiwan’s defense ministry is assessing whether the four-month requirement is adequate, particularly as there appears to be a high degree of public support for extending the mandatory training, Hsiao said. But the change won’t happen overnight.

Taiwan’s reserve force, meanwhile, is large but limited in capability, Glaser said.

“These people get called up for something like two days a year, so it’s not a serious reserve force,” she said.

Taiwan officials have had extensive communications with their American counterparts on ways to revamp the reserves system, Hsiao said. Officials recently began more intensive reserve training, she said, the timing of which coincided with the beginning of the Ukraine conflict.

The Pentagon is also urging Taiwan to increase cooperation between the military and civilian institutions, particularly with regard to protecting critical infrastructure, officials said. The department has also encouraged the Taiwanese military to consider introducing a civilian territorial defense force, but has not gotten much traction, Glaser said.

“Part of the problem in Taiwan is there really isn’t much enthusiasm among the civilians to work with the military or the military to work with civilians,” she said.

“That said, I think the Pentagon would really like Taiwan to draw some lessons from Ukraine, as everyone has seen that putting up resistance can be one of the most decisive factors in wartime.”

A ‘problematic’ analogy?

But some analysts believe using Ukraine as a model for Taiwan is the wrong approach. Randall Schriver, who served as the Pentagon’s top Asia policy official in the Trump administration, noted that Ukraine may have thwarted a swift Russian victory — but at the cost of tens of thousands of lives and millions of people displaced.

“If you tell Taiwan, ‘this is the plan for you,’ that’s not very comforting,” Schriver said.

The Ukraine analogy is also “problematic” because of Taiwan’s geography — the Chinese must cross 100 miles of ocean to get to the island, whereas Russia and Ukraine share a 1,200-mile land border, Schriver noted. Any Chinese invasion would be visible from miles away and vulnerable to standoff weapons. On the other side, resupply — an issue crucial to Ukraine’s defense — would be much more difficult in the case of Taiwan, a weakness Beijing may seek to exploit with an air and sea blockade.

The diplomatic situation also poses a challenge: Many countries, including the United States, do not recognize Taiwan’s independence from China, while Ukraine is internationally recognized as a sovereign nation, he added.

“There is no guarantee that the international community rallies around Taiwan the way it did Ukraine because of the non-diplomatic status,” he said.

Some analysts worry that, while a mobilized and trained civilian defense force might be useful, the goal should be deterring an attack in the first place. Dan Blumenthal, senior fellow and director of Asian Studies at the American Enterprise Institute, noted that Taiwan needs tools now to deal with near daily Chinese air incursions and other types of military intimidation around the island. Some factions in Taipei believe aircraft such as F-16s, MH-60Rs and E-2Ds are key to solving this problem.

“Taiwan’s political and military leadership need a number of things to deter, including being able to counter the daily coercive and intimidating threats that they face,” Blumenthal said. “They can’t just sit back and wait for an invasion.”

Defense Secretary Lloyd Austin himself advised lawmakers in April not to make “direct comparisons” between Ukraine and Taiwan.

“These are two completely different scenarios, two different theaters,” Austin said during an April 5 hearing.

The economic toolbox

There’s also increased thinking in U.S. government and analytical circles about the non-military dimensions of a Chinese attack on Taiwan — including using sanctions to deter Beijing, or at least punish it.

Last summer, well before the Russian invasion of Ukraine, Eric Sayers of the American Enterprise Institute attended an informal meeting of about 15 former U.S. government officials, analysts and congressional staffers interested in Taiwan policy and sanctions and export control measures.

The goal of the Washington gathering was to brainstorm ways to sharpen the economic tools the United States and allies could use to prevent a Chinese attack. The idea was to “basically do the homework now so we have it ready to go later,” Sayers said.

Congress may need to pass legislation — similar to the Countering America’s Adversaries Through Sanctions Act, which targeted Iran, North Korea and Russia — spelling out the sanctions China would face if it were to initiate a conflict, Sayers said. “Congress can play a bad cop role and initiate that,” he said.

That could prove one of the trickiest efforts of all. The United States is far more economically entangled with China than it was with Russia, although there have been efforts in recent years to reduce that dependency.

But at the same time, the Russian invasion raised questions about the efficacy of sanctions, Friedberg said, noting that the threat of sanctions “didn’t deter the Russians from doing what they did in Ukraine.”

“There is a question of whether we’d be willing to do the same thing with China, because the cost to us would be much greater,” he said.

Nahal Toosi and Phelim Kine contributed to this report.

[skinowski] [X] https://t.co/ozzQAdXiSF— David P. Goldman (@davidpgoldman) August 22, 2021 ...

skinowski — 9/7/2021 6:40:02 PM

[X]

https://t.co/ozzQAdXiSF
— David P. Goldman (@davidpgoldman) August 22, 2021

[/X]
Goldman: The Dr. Frankensteins of Foreign Policy
David P. GoldmanAug 22, 2021 11:16 AM ET
Over dinner, in 2015, Admiral Luo Yuan told me that “General Petraeus created ISIS in order to destabilize China.”

“That’s ridiculous,” I said.

“It is not ridiculous in the least,” Luo continued, in the benevolent tone in which one instructs especially slow students. “There are ISIS leaders whom we have identified and tracked, who were trained by Petraeus during the ‘Surge,’” the counter-insurgency campaign that Petraeus conducted in 2008–2009 to contain a Sunni rebellion against the majority Shi’ite government that the United States had helped bring to power in 2007.

I took a deep breath and explained: “This was a comedy of errors. The neo-conservatives in the Bush administration believed in majority rule as a matter of dogma, so the US held elections in 2007 and the Shi’ite minority won. Then the Sunnis who used to run Iraq under Saddam Hussein resisted with guerilla war and terrorist attacks. Petraeus was just a careerist looking for another star, and he told the Bush Administration that he could fix the Sunni problem by paying off the Sunni tribal leaders. He handed out hundreds of millions of dollars to the Sunnis and gave them weapons and training through the ‘Sons of Iraq’ and the ‘Sunni Awakening.’” When Obama took US forces out of Iraq, a lot of the same Sunnis who took money from Petraeus faced the same Shi’ite state, and became non-state actors, that is ISIS. And the CIA’s support for Sunni jihadist opponents of the Assad government in Syria made matters worse, as the Defense Intelligence Agency warned in a notorious 2012 report.”

Of course, I wasn’t quite that coherent, but that was the gist of my reply.

My Chinese interlocutor was not impressed. “You’re trying to tell me that the people who run the world’s great superpower are complete idiots who don’t think about the consequences of their actions?”

Memo to heads of state: beware the clever general who turns up at a tough moment, and says “Leave it to me: I can fix it for you.” Two examples come to mind. The great field marshal of the Thirty Years War of 1618-1648, Albrecht von Wallenstein, taught armies to live off the land, and succeeded so well that nearly half the people of Central Europe starved to death during the conflict.

General David Petraeus, who heads America’s Central Command (CENTCOM), taught the land to live off him. Petraeus’ putative success in the Iraq “surge” of 2007-2008 is one of the weirder cases of Karl Marx’s quip of history repeating itself first as tragedy second as farce. The consequences will be similar, that is, hideous.

Wallenstein put 100,000 men into the field, an army of terrifying size for the times, by turning the imperial army into a parasite that consumed the livelihood of the empire’s home provinces. The Austrian Empire fired him in 1629 after five years of depredation but pressed him back into service in 1631. Those who were left alive joined the army, in a self-feeding spiral of destruction on a scale not seen in Europe since the 8th century. Wallenstein’s power grew with the implosion of civil society, and the Austrian emperor had him murdered in 1634.

Petraeus accomplished the same thing with (literally) bags of money. Starting with Iraq, the American military has militarized large parts of the Middle East and Central Asia in the name of pacification. And now America is engaged in a grand strategic withdrawal from responsibility in the region, leaving behind men with weapons and excellent reason to use them.

Petraeus’ “surge” of 2007-2008 drastically reduced the level of violence in Iraq by absorbing most of the available Sunni fighters into an American-financed militia, the “Sons of Iraq,” or Sunni Awakening. With American money, weapons and training, the remnants of Saddam Hussein’s regime have turned into a fighting force far more effective than the defunct dictator’s state police. And now the American military is doing the same thing in Afghanistan, and, under General Keith Dayton, in Palestine. America is pouring money – which is to say weapons – into disputed areas of Afghanistan, and building the core of a Palestinian army. The latter’s mission is to impose a pro-Western Palestinian government on a population of whom two-thirds oppose the two-state solution. It more likely will end up fighting Israel.

Petraeus created a balance of power between Sunnis and Shi’ites by reconstructing the former’s fighting capacity, while persuading pro-Iranian militants to bide their time. To achieve this balance of power, though, he built up Sunni military power to the point that – for the first time in Iraq’s history – Sunnis and Shi’ites are capable of fighting a full-dress civil war with professional armed forces. “Nation-building” in Iraq failed to construct any function feature of civil society – a concept hitherto unknown to Mesopotamia – except, of course, for the best-functioning organized groups of killers that Iraq ever has had.

The Iranians had no interest in disrupting the surge. If they had, the American military would have made short work of their local proxies, who never could outfight the US Marines. Iran is patient, playing for time, possibly to acquire nuclear weapons – which Washington has all but conceded – and until the Americans withdraw, which they must sooner or later.

An old Israeli joke says that you can’t buy an Arab, but you can rent one. An October 16, 2007, report describes the first meeting between the then commander of American forces in Iraq, Major General Rick Lynch, and his superior, Petraeus, with Sunni tribal leaders:

One mentions weapons, but the general insists: “I can give you money to work in terms of improving the area. What I cannot do – this is very important – is give you weapons.”

The gravity of the war council in a tent at the US forward operating base at Camp Assassin is suspended for a few moments as one of the local Iraqi leaders says jokingly but knowingly: “Don’t worry! Weapons are cheap in Iraq.”

“That’s right, that’s exactly right,” laughs Lynch in reply.

That was then. American forces now are trying to do the same thing in Afghanistan, except that they are unable to distinguish between tribesmen-for-rent and the Taliban itself. The New York Times reported April 3:

Since their offensive here in February, the Marines have flooded Marjah with hundreds of thousands of dollars a week. The tactic aims to win over wary residents by paying them compensation for property damage or putting to work men who would otherwise look to the Taliban for support. The approach helped turn the tide of insurgency in Iraq. But in Marjah, where the Taliban seem to know everything – and most of the time it is impossible to even tell who they are – they have already found ways to thwart the strategy in many places, including killing or beating some who take the Marines’ money, or pocketing it themselves.

Having armed all sides of the conflict and kept them apart by the threat of arms, the United States now expects to depart leaving in place governments of national reconciliation that will persuade well-armed and well-organized militias to play by the rules. It is perhaps the silliest thing an imperial power ever has done. The British played at divide and conquer, whereas the Americans propose to divide and disappear.

At some point the whole sorry structure will collapse, and no-one knows it better than Petraeus. There are many possible triggers. The Iraqi government might collapse, leaving the political agenda to the men with guns. Iran might acquire a deliverable bomb and turn its dogs lose in Iraq after the Americans withdraw. Iran and Pakistan might come to blows over the fractious province of Balochistan on their mutual border, or over Iran’s covert support for Pakistan’s Shi’ites, who comprise a fifth of the country’s population. Or the Israelis might strike Iran’s nuclear program, or Syria, or the Hezbollah clients of Syrian and Iran in Lebanon.

[skinowski] Message 33476655

skinowski — 9/7/2021 6:31:02 PM

[skinowski] [X] When I was Three I was hardly me. When I was Four, I was not much more. Wh...

skinowski — 7/2/2021 9:13:54 AM

[X]

When I was Three
I was hardly me.
When I was Four,
I was not much more.
When I was Five,
I was just alive.
But now I am Six,
I'm as clever as clever,
So I think I'll be six now for ever and ever.
- A.A. Milne
— David A. Sinclair (@davidasinclair) July 2, 2021

[/X]

[skinowski] First Day Performance of Each Month Posted on July 1, 2021 by Rob Hanna Since...

skinowski — 7/2/2021 8:43:56 AM

First Day Performance of Each Month

Posted on July 1, 2021 by Rob Hanna

Since the late 80s there has been a tendency for the market to rally on the first day of the month. One theory on why this occurs is that there are often 401k inflows that are put to work on the 1st of the month. I examined this tendency and broke it down by month here on the blog a few times over the years. I decided to update the study again today.

The only month that comes even close to July from a Win % and Avg Trade standpoint is February. I’ll also note that August is the worst performer of any month.

Want research like this delivered directly to your inbox on a timely basis? Sign up for the Quantifiable Edges Email List.

[skinowski] of the table. [graphic]Below I have listed the performance of exchange-traded f...

skinowski — 9/3/2020 10:47:56 AM

of the table.

Below I have listed the performance of exchange-traded funds that replicate these factor indices. Given the more recent inception dates of these funds, we do not have the full histories that we have for the underlying indices above, which is why I continue to show both in this series. These are certainly not the only ways to get exposure to these factors, and increasing competition in the realm of smart beta is likely to continue to further push down expense ratios in the industry going forward. Value ( RPV), Low Volatility ( SPLV), Dividend Growth ( NOBL), Equal-Weighting ( RSP), and Quality ( SPHQ) draw from the S&P 500 ( SPY) - they are simply alternative weightings to that traditional capitalization-weighted index. Size ( IJR) draws from a separate Standard and Poor's index, the S&P Small Cap 600 index. Momentum ( MTUM) draws from the broader MSCI USA Index.

For these seven factors and the S&P 500, I have also calculated the standard deviation of monthly returns. In this series, I am using this volatility measure as a risk proxy. While some buy-and-hold investors may counter that they have a long-term view and are not impacted by market volatility, unfortunately, many individual investors all too often can be whipsawed by market swings.

Some investors may prefer strategies with less variability of returns like Low Volatility and Dividend Growth. I think these calculations give readers a feel for the volatility differences in the various strategies. We will also track this measure to ensure that these strategies are delivering on their promise of a smoother return profile. Dividend Growth, a strategy that has delivered its historical outperformance in down markets, is lagging in 2020 without meaningfully lower realized volatility, a historical anomaly. Low Volatility, August's laggard, has still delivered negative returns year-to-date, meaning its low realized volatility offers cold comfort to investors like me. Momentum and Quality, the outperformers in 2020, have also delivered slightly lower volatility over the last year. Size and Value, the underperformers in through 2020, have produced lower returns with higher realized volatility.

As mentioned in the lede, Momentum ( MTUM) outperformed again in August with nearly a 10% total return on the month. Unlike many of the factor tilt indices that replicate the S&P 500, the iShares Edge MSCI USA Momentum Factor ETF replicates the broad MSCI U.S. Index. In August, the inclusion of Tesla ( TSLA), which is not owned in the S&P 500, contributed a positive 267bp of the return differential as the electric vehicle maker soared 74%. The Momentum strategy's ownership of Tesla, contributed the entire difference in monthly return between the Momentum Index and the S&P 500. Elon Musk's company is now worth roughly the combined market capitalization of the developed world's entire auto industry, excluding Toyota - a stunning valuation figure for which I am skeptical.

Quality ( SPHQ), which has ridden the relative Tech gains to market-beating returns on the year, outperformed again in August. The strategy, which is 41% allocated to the Tech sector, also benefited from no ownership of underperforming utilities and a limited weight to financials in August.

While August was another month in the win column for Growth stocks, Value( RPV) did notch a 4.9% total return. While certain Consumer Discretionary and Industrial names did well for the value-based strategy, overweights to Energy and Financials and that tech underweight continued to drag down relative performance.

Equal-Weighting ( RSP) also lagged as the tech-focused megacaps again outperformed. From a pure sector perspective, equal-weighting is most underweight Information Technology (-14%) and Communications (-6%), which were the two best performing sectors on the month for the S&P 500.

Dividend Growth ( NOBL) returned 4.0%, lagging the S&P 500 as the tech giants it is underweight rallied on the month. While 54 of the 66 Dividend Aristocrats posted positive returns on the month, their gains were not able to keep pace with the red-hot tech sector.

Size ( IJR) also underperformed in August as underweights to Tech and Communications and overweights to Financials and REITs weighed on performance. While small caps tend to lead in market recoveries, the Size factor is lagging the tech-influenced large caps since the market bottom in March.

Low Volatility ( SPLV) was the laggard in August as higher interest rates weighed on the defensive equity allocation, which returned just 2.9% on the month. An underweight to Tech, a security selection miss in Health Care, and an overweight to lagging Consumer Staples all hurt the strategy in August.

Tech was the story in August... as it was in July. The best performing strategies - Momentum and Quality - were overweight. Strategies that are naturally underweight like Dividend Growth, Equal-Weighting, and Value lagged. While Tech can continue to ride this momentum in the short-run, it feels like the relative rally for this component of the market is increasingly stretched. Investors looking at just the S&P 500's returns should realize that all of the return has come from Tech and tech-like stocks outside of that sector like Consumer Discretionary's Amazon and Communications' Facebook ( FB). Ultimately, lagging sectors and strategies will play catch ......

Disclaimer: My articles may contain statements and projections that are forward-look

FROM seekingalpha.com

[skinowski] Another version, using SPHD seekingalpha.com data on the underlying index is ...

skinowski — 1/28/2020 2:44:10 PM

Another version, using SPHD

seekingalpha.com

data on the underlying index is available back to 1990. The S&P 500 Low Volatility High Dividend Index takes the 75 highest dividend-yielding stocks in the S&P 500, selecting the 50 stocks with the lowest realized volatility over the trailing year. The number of stocks from a given industry is capped at 10. The index constituents are weighted by dividend yield, and rebalancing is done bi-annually in January and July.

Using the full set of data from the index methodology dating back to 1990, the S&P High Dividend Low Volatility Index has strongly outperformed the S&P 500 with lower return volatility. As depicted below, the index has had an average return of 11.87%, besting the S&P 500 by 164 bps per year through yesterday's close.

Source: Bloomberg

This absolute outperformance was achieved with 89% of the return volatility of the S&P 500 as measured by the annualized standard deviation of monthly returns. It makes sense then that we could swap out the riskier S&P 500 as well as a smattering of low-yielding bonds in exchange for this high-dividend/low-volatility fund and produce higher absolute and risk-adjusted returns.

In the table below, I compare the return profile of the S&P 500 ( SPY), a bond index ( AGG), the 60/40 combination of the two rebalanced annually, the High Dividend Low Volatility Index (denoted as LVHD), and a portfolio that is 80% LVHD and 20% Agg. Note that 60/40 produces a higher Sharpe ratio than equities or bonds alone, but that LVHD with and without a bond complement produces even higher risk-adjusted returns. The Low Volatility High Dividend strategy is riskier than the Low Volatility strategy depicted in the popular firstarticle in this mini-series. Even the 80/20 with LVHD is riskier than the traditional 60/40, but both LVHD and the 80/20 with LVHD deliver higher long-run returns than the balanced portfolio because Low Volatility High Dividend Stocks have outperformed historically.

[skinowski] Another one, by the same author, extending the dataset back to 1976. Results st...

skinowski — 1/23/2020 5:40:01 PM

Another one, by the same author, extending the dataset back to 1976. Results still good, actually a little better.

seekingalpha.com

The table below shows the annualized return and standard deviation of monthly returns for the S&P 500, Agg, a 60/40 combination of the two, our Low Volatility proxy, and a roughly 80/20 combination of Low Volatility and the Agg.

Over this expanded period, the 60/40 portfolio trailed the S&P 500 by just 136bp per year, but with only 65% of the variability. It is no wonder that has become a well-used portfolio allocation heuristic. The Low Volatility portfolio, however, produced higher annualized returns versus the S&P 500 (+94bp per annum) with less than 80% of the variability. Similarly, the 80% Low Volatility/20% Aggregate Index portfolio delivered slightly higher returns than the S&P 500 (+0.03% per annum) with roughly the same variability as the 60/40 portfolio.

Importantly for this analysis, Low Volatility outperformed the S&P 500 from 1976-1991. Notably, it also outperformed the S&P 500 over the 1976-1981 period that featured sharply higher interest rates. While low volatility stocks tend to be more interest rate sensitive, a feature that makes them a good fixed income substitute, they lowest volatility quintile of the U.S. equity market still bested the S&P 500 over that period of rising rates, best this S&P 500 by over 1% per annum with less than three quarters of the variability.

The graph below shows the cumulative return profile of the different strategies over the full expanded dataset from 1976 through 2019.

The outperformance of Low Volatility was likely aided by the size factor, since I expanded the selection universe beyond the low volatility constituents of the large cap S&P 500. I have often captured the tremendous performance of low volatility small ( XSLV) and mid-cap ( XMLV) stocks, most notably in the article on My Favorite Market Dataset. The relative outperformance of low volatility stocks versus the S&P 500 was in part driven by the underperformance of high beta stocks ( SPHB) over this horizon.

[skinowski] From the same article [graphic]

skinowski — 1/22/2020 7:49:02 PM

From the same article

[skinowski] Low Vol (excerpt) >>>> The table below lists performance figures for the equity...

skinowski — 1/22/2020 6:56:36 PM

Low Vol (excerpt)

>>>> The table below lists performance figures for the equity index (SPX), the bond index, the 60/40 portfolio of stocks and bonds, low volatility stocks (LV), and an 80/20 portfolio of low volatility stocks and bonds over this long study period. Annual return data dates to 1991, the longest available period of annual returns for my chosen Low Volatility Index.

Even with stocks near all-time highs, the 60/40 portfolio (rebalanced annually in this example) has trailed the standalone S&P 500 by just 1.4% per year. This strong performance occurred with around 60% of the volatility of the S&P 500 and lower drawdowns in times of stress. With that performance, it is no wonder that 60/40 has been a standard-bearer for portfolio allocators.

The column just to the right of the 60/40 breakdown; however, shows that owning low volatility stocks (NYSEARCA: SPLV) performed even better on a risk-adjusted basis. The S&P 500 Low Volatility Index outperformed the S&P 500 on an absolute basis with under three-quarters of the variability. The incremental 2.3% annualized return of low volatility stocks versus the 60/40 mix was healthy compensation for the modest uptick in risk, as reflected in the higher Sharpe Ratio - a measure of risk-adjusted returns.

The column on the far right of the table is an 80/20 combination of the Low Volatility Index and the U.S. Aggregate Bond Index. This addition of a fixed income component, while half the level of the traditional 60/40 mix, further dampened the volatility of owning Low Volatility stocks. In fact, as you can see from the table above, the realized risk of the 80/20 portfolio was actually slightly lower than the 60/40 portfolio. The 131bp annualized positive return differential for the 80/20 strategy versus the 60/40 strategy led to a higher

seekingalpha.com

[skinowski] Years ending in 0 [X] Dow Industrials Years Ending in "0"..... pic.twitter.com...

skinowski — 1/15/2020 3:59:46 PM

Years ending in 0

[X]

Dow Industrials Years Ending in "0"..... pic.twitter.com/XKEMMk9Zbf
— Nautilus Research (@NautilusCap) January 15, 2020

[/X]

[skinowski] Last 12 y returns by asset class [X] Asset Class returns since 2008... pic.twi...

skinowski — 1/2/2020 4:31:59 PM

Last 12 y returns by asset class

[X]

Asset Class returns since 2008... pic.twitter.com/OOdqeoIXZ1
— Charlie Bilello (@charliebilello) January 2, 2020

[/X]

[skinowski] [graphic]SA on dividend stocks Re-evaluate whether behavioral biases like menta...

skinowski — 12/16/2019 12:31:09 PM

SA on dividend stocks

Re-evaluate whether behavioral biases like mental accounting are driving a tilt towards the highest yield stocks.Understand the index construction of your dividend growth ETF. Yield weighted ETFs like the SPDR S&P Dividend ETF ( SDY) may deliver lower long-run prerformance versus equal-weighted dividend growth ETFs. Dividend growth funds that utilize equal-weighting like the ProShares S&P 500 Dividend Aristocrats ETF ( NOBL), the ProShares S&P MidCap 400 Dividend Aristocrats ETF ( REGL), ProShares Russell 2000 Dividend Growers ETF ( SMDV) may be preferably designed. With these backward-looking strategies based on dividend history, periodic checks on dividend sustainability are warranted. That can be a financial statement view of how well dividends are covered, or an overarching look at credit ratings, credit spreads, or short interest, like I have published for readers in recent articles. Manage how you allocate dividend-paying stocks between your taxable and tax-deferred accounts with your other investments to maximize after-tax returns

seekingalpha.com

(Arithmetic chart from a different article by the same author)

[skinowski] SPX seasonality - day by day [X] Over the past 20 years, right about now tends...

skinowski — 12/11/2019 4:34:58 PM

SPX seasonality - day by day

[X]

Over the past 20 years, right about now tends to be quite weak on average for the S&P 500. pic.twitter.com/mTkcQs8mIg
— Ryan Detrick, CMT (@RyanDetrick) September 23, 2019

[/X]

[skinowski] ....annualized gross premiums of conventional size (SMB), value (HML), profitabi...

skinowski — 12/10/2019 3:59:52 PM

....annualized gross premiums of conventional size (SMB), value (HML), profitability (RMW), investment (CMA) and volatility (VOL) ..... by decade since 1929.
cxoadvisory.com

[skinowski] Tran:Spx ratio cycles [X] Dow Transports / SPX optimized long-term cycle // su...

skinowski — 12/4/2019 10:00:37 AM

Tran:Spx ratio cycles

[X]

Dow Transports / SPX optimized long-term cycle // suggests an imminent trough. pic.twitter.com/csLODuVU9O
— Nautilus Research (@NautilusCap) December 4, 2019

[/X]

[skinowski] LowVol :SPX ratio [X] Low-Vol/S&P Ratio (updated from June 16). Adding more f...

skinowski — 11/6/2019 7:49:34 AM

LowVol :SPX ratio

[X]

Low-Vol/S&P Ratio (updated from June 16).

Adding more fuel to the fire:

Over close to 50 years, virtually every peak in Low-Vol relative returns triggered a Major intermediate Buy signal for the market $SPX.

Same "fear Bubble" in 2012/2016, right before Stocks broke out. pic.twitter.com/bR8S5oRwX7
— Macro Charts (@MacroCharts) November 6, 2019

[/X]

[skinowski] Actually, the most uncorrelated pair seems to be LowVol vs Value [X] Excellent ...

skinowski — 11/2/2019 9:32:09 AM

Actually, the most uncorrelated pair seems to be LowVol vs Value
[X]

Excellent work, thank you. Looks like soon time may be coming to trade LowVol for Mom and Value.
....... https://t.co/sYeJ0MSxCQ
— Olskis1 (@Olskis1) October 31, 2019

[/X]

[skinowski] [X] Very nice... big pic summary. https://t.co/OBPY40b4K2— Olskis1 (@Olskis1) N...

skinowski — 11/2/2019 9:28:34 AM

[X]

Very nice... big pic summary. https://t.co/OBPY40b4K2
— Olskis1 (@Olskis1) November 2, 2019

[/X]

[skinowski] October seasonality [graphic] jeffhirsch.tumblr.com

skinowski — 10/1/2019 7:47:48 AM

October seasonality

jeffhirsch.tumblr.com

[skinowski] Factors throughout business cycles Message 32349401 [graphic]

skinowski — 9/30/2019 11:22:36 AM

Factors throughout business cycles

Message 32349401

[skinowski] [X] One of the least likely days of the year for the S&P 500 to be green is Sep...

skinowski — 9/24/2019 6:04:01 PM

[X]

One of the least likely days of the year for the S&P 500 to be green is September 24 (today).

Hmm. https://t.co/t4U25JjUSI
— Ryan Detrick, CMT (@RyanDetrick) September 24, 2019

[/X]

[skinowski] PWhy Many Global Investors Fail PloutosJul. 22, 2019 9:48 AM ET New academic res...

skinowski — 7/22/2019 10:18:31 PM

PWhy Many Global Investors Fail
PloutosJul. 22, 2019 9:48 AM ET
New academic research illustrates that the global equity risk premium has been attributable to only a small number of stocks.

While average returns are positive across markets, median returns for U.S. and global stocks trail the risk-free rate. Positively skewed strong performers tilt the market returns decidedly positive.

The article discusses implications of this research on portfolio construction.

The academic paper published in the past few years that most impacted my investment philosophy was Henrick Bessembinder's " Do Stocks Outperform Treasury Bills?" We know that the simple answer to the titular question is a resounding "yes." Over long-time intervals, the equity market has, on average, paid an investor a premium for taking equity risk.

In tracking nearly 26,000 stocks, Bessembinder found that a whopping 58% of stocks failed to outperform Treasury bills over their lifetimes in a long-term dataset, stretching back to 1926. On average, stocks outperform over long-time intervals, but the median stock in the U.S. equity market has actually produced negative alpha, an average return that trailed risk-free Treasury bills. This is a stat that should be of great interest to stock pickers out there.

Much of that paper focused on the fact that while the equity market generates above average returns on average, the fact that the median stock failed to generate a return above T-bills was a function of positive skewness in the cross-sectional distribution of stock returns.

That is a big thought, so let's break it down with an example. Imagine a stock that goes up by 30% or down by 30% with equal probability in a given period. The mean return is zero. In a two-period scenario, there are four potential outcomes:

In this example, the average return is zero, but the median return in negative. There is a three-in-four chance that you are going to generate a negative return, but the large return in the bull case offsets the negative cases. That is positive skewness, and the idea behind why the stock market has generated long-run excess returns, but most stocks have not produced a better return than bonds.

It makes intuitive sense. Over very long-time intervals, the maximum you are going to lose is 100%, but cumulative gains can be astronomical. The right tail of the distribution is much longer. Unfortunately, the most common cumulative return over a decade long holding period for stocks in the database is -100%. The positive excess returns for the market are a function of that long right tail.

Recently, Bessembinder combined with Arizona State colleague, Goeun Choi, and teamed with collaborators Te-Feng Chen and K.C. John Wei from Hong Kong Polytechnic University to extend this research to global markets. Their recent paper, " Do Global Stocks Outperform U.S. Treasury Bills?" covered 62,000 global common stocks trading on public markets in 42 countries from 1990 to 2018.

The fact that the equity market premia is driven by large gains in the tail of the distribution leads to some surprising facts in the global dataset:

While the average return was positive in all 42 countries examined, nearly 60% of global stocks (including 56% of U.S. stocks) did not exceed the accumulated return of rolling 1-month Treasury bills over matched time horizons.In total, stocks did extraordinarily well over this inclusive 29-year period, creating $44.7 trillion in wealth above the rolling Treasury portfolio even though the median stock failed to outperform this simple hurdle.Five of the 62,000 stocks in the study - Apple ( AAPL), Microsoft ( MSFT), Amazon ( AMZN), Alphabet ( GOOGL), and Exxon Mobil ( XOM) - represented just 0.008% of all stocks, but accounted for 8.27% of global net wealth creation.Just 306 companies (0.5% of total) accounted for 73% of net wealth creation. All of the net wealth was created by 811 global firms (1.33% of the total). Over this time horizon, less than 1% of non-US companies produced all of the wealth creation outside of the U.S. in this period.The top 5% of firms in each of the 42 countries created 42% of the wealth over this sample period.Of the 50 largest wealth creators over this time period, 34 were in the United States. The 16 outside of the U.S. were (in descending order by amount of wealth created (Tencent, Nestle, Samsung, Roche, Novartis, China Mobile, Taiwan Semiconductor, China Construction Bank, Unilever, Industrial & Commercial Bank of China, Toyota, Total, HSBC, Louis Vuitton Moet Henessey, L'Oreal). Conversely, 11 of the 20 largest weatch destroyers were Japanese. Only 4 were American - Worldcom, Viavi Solutions (formerly JDS Uniphase), Lucent Technologies, and Wachovia. To illustrate the impact of skewness on average returns, the table below shows 10,000 simulations produced by Bessembinder in his original U.S.-centric study where one stock is selected at random each month. The linked returns are then compared to zero, Treasury bills, the capitalization-weighted market portfolio, and the equal-weighted portfolio. The percentages indicate the proportion of simulations, which beat the targeted return.

As the time period extends, it is increasingly unlikely to beat T-bills let alone the equity market. Why? The random sampling is unlikely to capture the small number of stocks that generate a disproportionate share of the equity market's returns.

What are the implications for Seeking Alpha readers?

Diversification is extraordinarily important. Not only does it reduce idiosyncratic risk, but diversification also increases the likelihood that you own the small number of stocks that drive portfolio returns. Skewness was even more notable outside the U.S. with a smaller number of firms driving a large portion of total wealth creation.The positive skew of stock returns can be a siren's song for investors. Pick the right stock, and you can generate tremendous wealth. However, more likely than not you are going to pick a stock that generates middling or negative returns. It is no wonder it has been difficult to generate sustained outperformance through active management. That hurdle gets harder as time horizons extend.Over long-time intervals, the survival rate of companies is low, which may give further credence to the idea of Low Volatility strategies ( SPLV, USMV) that are more likely to avoid the all-too-frequent loss of principal. Stocks that bias up in Quality ( SPHQ), or have a long history of paying increasing dividends to shareholders ( NOBL) are more likely to compound and generate the positive skewness visible in multi-period returns. I encourage readers to peruse the excellent papers linked in this article, and discuss in the comments section.

Disclaimer: My articles may contain statements and projections that are forward-looking in nature, and therefore inherently subject to numerous risks, uncertainties and assumptions. While my articles focus on generating long-term risk-adjusted returns, investment decisions necessarily involve the risk of loss of principal. Individual investor circumstances vary significantly, and information gleaned from my articles should be applied to your own unique investment situation, objectives, risk tolerance, and investment horizon.

Disclosure: I am/we are long SPLV,USMV,SPHQ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

seekingalpha.com

[skinowski] Alpha machine seekingalpha.com MTUM For Momentum Kevin MeansJul. 11, 2019 9:05...

skinowski — 7/11/2019 9:33:14 PM

Alpha machine

seekingalpha.com

MTUM For Momentum
Kevin MeansJul. 11, 2019 9:05 AM ET
Momentum is one of the strongest and most persistent factor anomalies.

It is well supported in the academic literature.

MTUM is a very low-cost and tax-efficient way to exploit the momentum effect.

Very strong estimate revisions for its constituent stocks indicate that MTUM is likely to achieve above-average alpha in the near future.

Source: Shutterstock

The Case for Momentum InvestingWhen I was studying Economics as an undergrad and Finance as an MBA student in the 70s and 80s, the overwhelming consensus among academics was that markets were efficient. Most adherents to the Efficient Market Hypothesis (EMH) believed in the "semi-strong form" of market efficiency-that current market prices reflect all publicly available information (past prices, fundamentals, news, etc.). Nearly everyone held at least the less-restrictive "weak form" of market efficiency-that past returns could not help forecast future returns. Respectable opinion was that any use of technical analysis, trend-following, or use of price momentum was essentially the financial equivalent of reading entrails.

When Jegadeesh and Titman published their paper, " Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency" in the Journal of Finance in 1993, it was a direct challenge to the Efficient Market Hypothesis, even in its weakest form. They found compelling evidence that past stock returns were helpful in predicting future stock returns-winners tended to keep winning and losers tended to keep losing. Most academic studies ever since have pointed back to this paper as the opening salvo in the debate regarding the causes of superior risk-adjusted returns from momentum investing.

Most published studies have focused on momentum among individual stocks. Some studies have found that momentum is mostly a sector or industry effect. Other studies have found impressive returns from momentum effects using "style" portfolios of large vs. small and growth vs. value portfolios. Still other studies find that momentum works well when applied to international stock market indexes, government bond market indexes, commodities, and currencies:

"The existence of momentum is a well-established empirical fact. The return premium is evident in 212 years (yes, this is not a typo, two hundred and twelve years of data from 1801 to 2012) of U.S. equity data, dating back to the Victorian age in U.K equity data, in over 20 years of out-of-sample evidence from its original discovery, in 40 other countries, and in more than a dozen other asset classes. Some of this evidence predates academic research in financial economics, suggesting that the momentum premium has been a part of markets since their very existence, well before researchers studied them as a science." ("Fact, Fiction and Momentum Investing," Asness, et. al., Journal of Portfolio Management, Fall 2014.)

The evidence for a momentum anomaly is so strong that even those high priests of market efficiency, Fama and French, in a 2008 Journal of Finance article called it "an anomaly that is above suspicion…the premier market anomaly."

MTUM: The Best Momentum ETFOne of the biggest challenges for those who wish to pursue momentum investing is the difficulty of implementing it effectively. For one thing, by its very nature, momentum investing requires a high degree of turnover. This means that transaction costs will tend to loom large and eat into the excess returns of the strategy.

Also, with high turnover comes high realization of short-term capital gains, which are taxed at ordinary income rates. This is a major drag on after-tax returns for taxable accounts.

Fortunately, there are several momentum ETFs available which greatly ameliorate these problems. Because of the structure of ETFs, they are usually able to avoid distributing capital gains to shareholders, eliminating the tax problem from a high turnover strategy. Also, the sponsoring institutions are usually very good at controlling transaction costs, in part because as passively managed funds, they must perform as closely as possible to their underlying indexes, which have no transaction costs.

Here is a quick comparison of a few of the largest momentum ETFs:

I prefer iShares Edge MSCI USA Momentum Factor ETF ( MTUM) because of its extremely low expense ratio and bid-ask spread. The ETF selects from the MSCI USA Index, which is comprised of large and mid cap U.S. stocks. A raw momentum score is calculated for each stock based on a 50/50 average of the stock's return for the 6 months and 12 months prior to the most recent month, in keeping with the original Jagadeesh and Titman study. This raw momentum score is divided by the trailing 3-year weekly volatility of the stock to yield a risk-adjusted momentum score. The securities in the fund (currently 125) are weighted by the product of their market caps and their risk-adjusted momentum scores. The market cap component has the effect of putting more weight on larger, more liquid names with lower trading costs. The risk-adjusted momentum score component will result in sector weights that may depart dramatically from the cap-weighted index. I consider this an advantage, since research indicates that momentum helps pick sectors as well as stocks.

MTUM is very tax efficient. It has a distribution rate of 1.30%. It distributes only its dividend income. It has never distributed a capital gain.

MTUM: An Alpha MachineVery few funds of any kind, whether actively or passively managed, actually produce a meaningful level of alpha, or risk-adjusted excess return. Nearly all of the return for nearly all funds is simply beta, or risk-based return from exposure to risk factors. And on average, funds generate negative alpha because of their expense ratios and operating costs, including transaction costs.

To see if MTUM is has historically provided any alpha, we must first disentangle its risk-based return from its total return. This exercise starts by measuring the sensitivity of MTUM's returns to four risk factors that capture much of the risk common to most ETFs:

Stock market risk (MKT), as measured by the S&P 500 IndexBond market risk (LTB), as measured by the 10 Year Treasury Benchmark IndexCurrency risk (DLR), as measured by the U.S. Dollar IndexCommodity risk (OIL), as measured by the West Texas Intermediate Crude Oil IndexI use exponentially-weighted 36-month rolling multiple regressions to measure these risk factor sensitivities (often called betas) simultaneously. MTUM started trading on April 16, 2013, but the underlying index goes back to December 31, 1981. I use the index returns to calculate risk factor sensitivities in order to take advantage of this longer history, since I know that as an index fund, MTUM's returns will be very close to its underlying benchmark index (before the impact of the 0.15% fund expense ratio). This enables me to backtest the strategy embedded in the index as well as measure the history of its risk factor exposures.

Source: Graph created by author using data from FactSet

The graph above shows that MTUM's equity market beta (labeled MKT in blue) is its only consistently significant risk factor exposure, as expected for an equity fund. The historical equity market sensitivity has generally been between 70% and 130% (or a beta of .7 to 1.3) but in the post-2008 era it has been fairly close to 1.0. In recent years, its LTB sensitivity has increased, perhaps because aggressive Fed easing has been driving the stock market more than usual.

Source: Graph created by author using data from FactSet

The graph above disaggregates the cumulative return of MTUM since December 31, 1999. Returns are based on the underlying index before fund inception (after subtracting the .15% expense ratio), and on live fund returns after inception. Much of the fund's return is explained by its equity market sensitivity (BLUE), as expected for an equity ETF. (To calculate the return from MKT sensitivity, I multiply the ETF's previous month-end MKT sensitivity times the monthly price return of the S&P 500. I use the same methodology for the other three risk factors.) The residual return (black) is the total return minus the return from the four risk factor sensitivities. This is the fund's alpha, or risk-adjusted excess return.

As highlighted in a previous article, it is not unusual for factor-based ETFs such as MTUM to show impressive alpha based on the backtest of the underlying index before inception. Sometimes, fund sponsors cherry-pick the amount of history to show for the index, or even tinker with the rules governing the index to boost its historical return. MTUM's sponsor is BlackRock, a firm known for its index construction and its careful quantitative implementation. The fact that they offer index returns back to 1981 (I chose to show only the period since 1999) indicates that they did not cherry pick the index history.

The fact that the fund's residual return (alpha) has been nearly as high since its inception as it was prior to inception indicates that there really is some sort of market anomaly being captured by the index construction rules:

Remember, most funds have no discernible alpha-their return is entirely explained by risk factor sensitivities. Both the power of and the persistence of the risk-adjusted excess return for MTUM are extremely impressive.

MTUM: Now is the TimeThe residual return for MTUM has some definite variability. There have been periods when it has been higher and some when it has been lower or even negative (when the black residual return line above has been downward sloping). Is there any way to forecast whether the current period is likely to be above or below average?

In fact, we spend a lot of time on that very question at Sapient Investments. We try to identify sensible, fundamentally-based factors that help give us an edge regarding the likely residual return of the ETFs and CEFs (closed-end funds) in which we invest. For the most part, the factors that we use are various ways of quantifying value, momentum, or quality. We get the data from FactSet, which provides a bottom-up aggregation of factor exposures for ETFs based upon the fact that the constituents of ETFs are public information available daily.

We put factor-based ETFs like MTUM into a research universe of other fairly similar ETFs. The "alternative equity ETFs" universe includes ETFs focused on factors such as size, value, growth, volatility, momentum, quality, buybacks, insider activity, dividend yield, IPOs, and hedge fund holdings replication. Most limit their holdings to U.S. stocks, but some include global or international holdings. Currently, the alternative equity ETF universe has 92 constituents.

I would like to highlight just one of the factors that our research has found particularly helpful in forecasting the alphas of factor-based ETFs: earnings estimate revisions. The particular factor is a "diffusion" index that measures % up - % down. FactSet provides both the number of estimates that have been revised up or down within a particular time period, as well as the number of companies that experienced net upward or downward revisions, for both the current fiscal year and the next fiscal year. We have constructed a factor that combines all of these elements: "EPS Estimate %Up - % Down."

Our research indicates that within the alternative ETF universe the EPS Estimate %Up - %Down factor is the single most powerful ETF selection factor in our arsenal. The graph below illustrates one of our research tests for that factor. We begin our test at the end of 2006 when the number of ETFs with data for this factor reached a critical mass of 27. (Currently, of the 92 ETFs in the universe, 76 have data for this factor.) At the end of each month, we form a "Top 10" portfolio of the 10 ETFs with the highest EPS Estimate %Up - %Down. Each has a 10% weight. We calculate the residual (risk-adjusted) return of this portfolio during the month and then re-select and rebalance the "Top 10" portfolio at the end of the next month, and so on. Similarly, at the end of each month we also form a "Bottom 10" portfolio of the five ETFs with the smallest, or most negative, EPS Estimate %Up - %Down, re-selecting and rebalancing monthly.

Source: Graph created by author using data from FactSet

In the graph above, the blue line is the cumulative log of residual return of an equal-weighted portfolio of the 10 ETFs with the largest EPS Estimate %Up - %Down, rebalanced monthly. Since 2006, the average log of residual return (net of risk effects such as equity market and interest rate betas) has been 1.7% per year on average. The orange line is the same thing but investing in the 10 with the smallest (or most negative) EPS Estimate %Up - %Down. That return has been -4.1%. The green line is a long-short implementation of the strategy. Its return has been 5.8% per year.

Source: Graph created by author using data from FactSet

As of June 30, 2019, MTUM had the highest EPS Estimate %Up - %Down of any ETF in our alternative equity ETFs universe. Based upon its factor loading and our model of the expected return to the factor, we were forecasting that MTUM would have a .54% residual return during July. (Our models only forecast one month ahead.) If sustained, this would result in an annualized alpha of 6.48% (.54% X 12 = 6.48%).

The graph above depicts the test for only one factor. At Sapient Investments we use several other factors to forecast the residual returns of ETFs. EPS Estimate %Up - %Down is essentially a momentum factor. (Thus, it is not surprising that MTUM would have a very high loading on this factor.) We also use various value-related and quality-related factors. While MTUM is not highly loaded on all of these, the incremental expected residual returns from these other factors add incrementally to its overall residual return forecast.

Momentum is a great factor. MTUM is a great way to play it. Now is a great time to buy it.

Disclosure: I am/we are long MTUM. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Our long and short positions change frequently, so we make no assurances about our future positions, long or short. The information contained in this article has been prepared with reasonable care using sources that are assumed to be reliable, but we make no representation or warranty regarding accuracy. This article is provided for informational purposes only and is not intended to constitute legal, tax, securities, or investment advice. You should discuss your individual legal, tax, and investment situation with professional advisors.

[skinowski] [X] Quant Links: Value, Long-Term Reversal, Quality, and Low Volhttps://t.co/y...

skinowski — 7/10/2019 8:14:30 AM

[X]

Quant Links:

Value, Long-Term Reversal, Quality, and Low Volhttps://t.co/yE0FyveYrP

Trend Following, Momentum, and Carryhttps://t.co/Ppk5Mm7MTp

Volatility Risk Premiumhttps://t.co/XBPq0uhn7p

Calendar and Diagonal Spreadshttps://t.co/GfU1J17hwq pic.twitter.com/Xlrlz4zZAs
— Darren (@ReformedTrader) March 16, 2019

[/X]

[skinowski] Faber [X] 1/ The @LeutholdGroup Green Book is my favorite read each month. A ...

skinowski — 7/5/2019 10:30:42 PM

Faber

[X]

1/ The @LeutholdGroup Green Book is my favorite read each month. A few chart highlights...

Small caps trading at discount to large caps on valuation... pic.twitter.com/VpRGSwrQ80
— Meb Faber (@MebFaber) July 5, 2019

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[X]

3/ Consumer confidence high and rolling over has been bearish.... pic.twitter.com/oulfH6UJ3b
— Meb Faber (@MebFaber) July 5, 2019

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[skinowski] LowVol /SPX ratio [X] Flows into Low-Volatility ETFs at a major extreme. Same...

skinowski — 6/16/2019 12:00:36 PM

LowVol /SPX ratio

[X]

Flows into Low-Volatility ETFs at a major extreme.

Same story repeating:

1. Low-Vol does well, becomes fashionable as a “safety/low-growth” play.

2. Attracts massive buying, then bleeds all the outperformance, while cyclicals & high beta recover sharply.$USMV $SPY $SPX pic.twitter.com/VNj22pmEGK
— Macro Charts (@MacroCharts) June 15, 2019

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[skinowski] schrts.co RPV:IWF [graphic]

skinowski — 6/14/2019 8:24:29 AM

schrts.co

RPV:IWF

[skinowski] Breadth thrusts [X] Nicest thing about these indications is you don't have to ...

skinowski — 6/4/2019 1:30:16 PM

Breadth thrusts

[X]

Nicest thing about these indications is you don't have to wait for price to get through some predefined level or, if it already has, they confirm the validity of the move. But still no guarantees...
— Walter Deemer (@WalterDeemer) June 4, 2019

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[skinowski] seekingalpha.com [graphic] [graphic] [graphic] [graphic] [graphic] [graphi...

skinowski — 6/4/2019 9:57:05 AM

seekingalpha.com

Momentum has seen its largest relative gains just before down years for the S&P 500. In fact, the last six negative years for the S&P 500 (in red - 2018, 2008, 2000-2002, 1990) were preceded by years where the momentum strategy strongly outperformed.

The underlying Momentum Index selects its constituents based on risk-adjusted price momentum over the past six to twelve months, which is then translated into a momentum score and weighted by the constituents' market capitalization. The referenced ETF replicates this index with an expense ratio of 0.15%.

The takeaway for me is that Momentum has tended to outperform in mid-to-late cycle periods. Its worst relative performance has occurred in early market recoveries. For some readers, the numerical representations of the relative performance will be most salient. For others, a stylized example of the part of the business cycle where various factor tilts outperform might be more relevant.

Below, I have created a pictorial demonstration of when various factors might be most appropriately deployed over the course of a business cycle. (I am not a gifted artist, so this line below is actually a historical market period with the dates excluded). Momentum lands in the mid-to-late cycle period, sandwiched between early recovery outperformers like Value and late cycle outperformers like Dividend Growth and Low Volatility.

[skinowski] Performance Of Factor Tilts: March 2019 seekingalpha.com

skinowski — 4/2/2019 11:22:53 PM

[skinowski] Factor performance seekingalpha.com

skinowski — 3/6/2019 9:09:09 AM

[skinowski] J Siegel chart of SPX vs bond vs cash twitter.com [graphic]

skinowski — 2/25/2019 12:15:42 PM

J Siegel chart of SPX vs bond vs cash

twitter.com