Category: Your Money

Index Update 02.10.2015

stockviz October 2, 2015October 2, 2015

MOMENTUM

We run our proprietary momentum scoring algorithm on indices just like we do on stocks. You can use the momentum scores of sub-indices to get a sense for which sectors have the wind on their backs and those that are facing headwinds.

Traders can pick their longs in sectors with high short-term momentum and their shorts in sectors with low momentum. Investors can use the longer lookback scores to position themselves using our re-factored index Themes.

You can see how the momentum algorithm has performed on individual stocks here.

Here are the best and the worst sub-indices:

Relative Strength Spread

Refactored Index Performance

50-day performance, from July 22, 2015 through October 01, 2015:

Equally Weighted		Market Cap. Weighted
CNX PHARMA (EQUAL)	+4.04%	CNX PHARMA (CAP)	+6.19%
CNX IT (EQUAL)	+0.78%	CNX IT (CAP)	+3.50%
CNX REALTY (EQUAL)	-1.31%	NI15 (CAP)	+1.24%
NI15 (EQUAL)	-2.34%	CNX REALTY (CAP)	+1.09%
CNX MEDIA (EQUAL)	-2.43%	NSE QUALITY 30 (CAP)	-0.77%
NSE QUALITY 30 (EQUAL)	-3.28%	CNX MEDIA (CAP)	-0.93%
CNX CONSUMPTION (EQUAL)	-5.08%	CNX FMCG (CAP)	-1.51%
CNX PSU BANK (EQUAL)	-5.15%	CNX CONSUMPTION (CAP)	-4.11%
CNX FMCG (EQUAL)	-5.48%	CNX SERVICE (CAP)	-6.62%
CNX AUTO (EQUAL)	-6.26%	LIX15 Midcap (CAP)	-6.81%
CNX SERVICE (EQUAL)	-6.80%	CNX MNC (CAP)	-6.83%
LIX15 Midcap (EQUAL)	-7.10%	CNX PSU BANK (CAP)	-7.53%
CNX FINANCE (EQUAL)	-7.13%	NV20 (CAP)	-9.08%
CNX MNC (EQUAL)	-7.43%	CNX AUTO (CAP)	-9.45%
CNX BANK (EQUAL)	-7.52%	CNX BANK (CAP)	-9.87%
NV20 (EQUAL)	-10.98%	CNX FINANCE (CAP)	-10.38%
CNX INFRA (EQUAL)	-11.65%	CNX ENERGY (CAP)	-15.28%
CNX ENERGY (EQUAL)	-12.01%	LIX 15 (CAP)	-15.71%
CNX COMMODITIES (EQUAL)	-12.73%	CNX COMMODITIES (CAP)	-15.89%
CPSE INDEX (EQUAL)	-13.24%	CNX PSE (CAP)	-16.23%
LIX 15 (EQUAL)	-13.40%	CNX INFRA (CAP)	-16.52%
CNX PSE (EQUAL)	-13.88%	CPSE INDEX (CAP)	-17.40%
CNX METAL (EQUAL)	-19.31%	CNX METAL (CAP)	-23.68%

Trend Model Summary

Index	Signal	% From Peak	Day of Peak
CNX AUTO	SHORT	15.03	2015-Jan-27
CNX BANK	SHORT	16.57	2015-Jan-27
CNX COMMODITIES	LONG	38.24	2008-Jan-04
CNX CONSUMPTION	SHORT	7.34	2015-Aug-05
CNX ENERGY	LONG	36.33	2008-Jan-14
CNX FMCG	LONG	10.30	2015-Feb-25
CNX INFRA	LONG	54.62	2008-Jan-09
CNX IT	SHORT	87.57	2000-Feb-21
CNX MEDIA	SHORT	18.02	2008-Jan-04
CNX METAL	LONG	69.95	2008-Jan-04
CNX MNC	SHORT	9.50	2015-Aug-10
CNX NIFTY	SHORT	11.62	2015-Mar-03
CNX PHARMA	SHORT	4.99	2015-Apr-08
CNX PSE	LONG	35.62	2008-Jan-04
CNX PSU BANK	SHORT	42.81	2010-Nov-05
CNX REALTY	SHORT	90.62	2008-Jan-14
CNX SERVICE	SHORT	10.92	2015-Mar-03

Dispersion is around its all-time lows – momentum algos will be struggling to find a toe-hold. Besides, the only thing that has worked in the last few months is long-only pharma and IT – both long USD trades.

Categories Your Money Tags index, momentum, weekly

Correlation Update 02.10.2015

stockviz October 2, 2015October 2, 2015

Nifty one year daily return correlations

Nifty one month daily return correlations

Bank Nifty one year daily return correlations

Bank Nifty one month daily return correlations

Midcap one year daily return correlations

Midcap one month daily return correlations

A lot of thick blue squares mean that positive correlations are high. Red squares mean negative correlations are high. Whites are the doldrums.

Categories Your Money Tags correlation, weekly

Monthly Recap: Good Investing Hurts

shyam October 1, 2015

Equities

Major
DAX(DEU)	-5.84%
CAC(FRA)	-4.25%
UKX(GBR)	-2.98%
NKY(JPN)	-5.88%
SPX(USA)	-2.58%

MINTs
JCI(IDN)	-5.43%
INMEX(MEX)	-2.18%
NGSEINDX(NGA)	+5.16%
XU030(TUR)	-1.22%

BRICS
IBOV(BRA)	-3.23%
SHCOMP(CHN)	-4.78%
NIFTY(IND)	+0.24%
INDEXCF(RUS)	-5.20%
TOP40(ZAF)	+1.20%

Commodities

Energy
Brent Crude Oil	-8.90%
Ethanol	+4.85%
Natural Gas	-5.45%
RBOB Gasoline	-15.74%
WTI Crude Oil	-5.77%
Heating Oil	-7.15%

Metals
Gold 100oz	-1.51%
Platinum	-9.61%
Copper	+2.15%
Silver 5000oz	-0.68%
Palladium	+8.89%

Currencies

USDEUR:+0.68% USDJPY:-0.80%

MINTs
USDIDR(IDN)	+4.31%
USDMXN(MEX)	+1.02%
USDNGN(NGA)	+0.17%
USDTRY(TUR)	+3.91%

BRICS
USDBRL(BRA)	+8.66%
USDCNY(CHN)	-0.34%
USDINR(IND)	-1.38%
USDRUB(RUS)	+2.21%
USDZAR(ZAF)	+4.24%

Agricultural
Coffee (Arabica)	+0.21%
Wheat	+6.04%
Coffee (Robusta)	-1.52%
Orange Juice	-18.53%
Soybean Meal	-4.62%
White Sugar	+8.38%
Cattle	-13.66%
Lumber	-3.66%
Soybeans	-0.61%
Cocoa	+2.59%
Corn	+5.98%
Cotton	-7.19%
Feeder Cattle	-11.86%
Lean Hogs	+7.97%
Sugar #11	+20.58%

Credit Indices

Index	Change
Markit CDX EM	-2.28%
Markit CDX NA HY	-2.05%
Markit CDX NA IG	+7.87%
Markit iTraxx Asia ex-Japan IG	+2.50%
Markit iTraxx Australia	+9.68%
Markit iTraxx Europe	+13.38%
Markit iTraxx Europe Crossover	+66.06%
Markit iTraxx Japan	+5.91%
Markit iTraxx SovX Western Europe	-2.27%
Markit LCDX (Loan CDS)	+0.00%
Markit MCDX (Municipal CDS)	+0.97%

A painful month for the markets finally came to an end with a relief rally. Chinese rebalancing away from an investment driven economy to a consumption driven one is forcing a new economic world order. And just when things seemed to be improving in Europe, the Volkswagen scandal hit and dragged everybody down. Investors seem to have quit pretty much every risk-asset…

International ETFs

This gives you an idea of how widespread the carnage was. India was one of the few markets that managed to end September in the green.

Gold

US rate hike jitters has pushed precious metals down for most of this year. With 2010’s hyper-inflation fears morphing into 2015’s deflation, gold has seen a massive sell-off…

Oil

Saudi’s kept the pump running, hoping to drive US shale operators out of business. But slowing global growth and an appreciating US Dollar might have had a bigger impact on oil prices…

US Dollar

Nifty Heatmap

Index Returns

Market Cap Decile Performance

Decile	Mkt. Cap.	Adv/Decl
1 (micro)	-1.65%	68/63
2	-0.57%	71/59
3	-1.01%	61/69
4	+0.97%	64/67
5	+0.84%	68/62
6	-2.22%	60/71
7	-1.06%	63/68
8	+1.48%	62/68
9	+0.03%	67/64
10 (mega)	-2.04%	64/67

Large caps bore the brunt of the selloff…

Top Winners and Losers

SRTRANSFIN	+13.78%
RPOWER	+14.67%
RELCAPITAL	+19.59%
MOTHERSUMI	-24.10%
BHARATFORG	-22.29%
BOSCHLTD	-16.47%

Auto stocks got shellacked because nobody knows how deep the Volkswagen scandal runs…

ETF Performance

BANKBEES	+0.16%
NIFTYBEES	-0.82%
GOLDBEES	-1.82%
JUNIORBEES	-2.38%
CPSEETF	-3.21%
PSUBNKBEES	-4.22%
INFRABEES	-6.32%

Hopefully, the 50bps rate cut will breathe some life into these…

Yield Curve

Bond Indices

Sub Index	Change in YTM	Total Return(%)
0 5	-0.28	+1.35%
5 10	-0.23	+1.85%
10 15	-0.15	+1.77%
15 20	-0.21	+2.54%
20 30	-0.20	+2.77%

Bonds rallied on the back of rate cuts. Is the bulk of the move done?

Investment Theme Performance

ADAG stocks	+12.21%
Momentum	+3.94%
High Beta	+3.69%
CNX 100 Enterprise Yield	+1.53%
Magic Formula	+1.26%
Quality to Price	+0.77%
Balance Sheet Strength	-0.63%
Financial Strength Value	-0.91%
PPFAS Long Term Value	-0.94%
The RBI Restricted List	-1.07%
Tactical CNX 100	-1.58%
ASK Life	-3.01%
Low Volatility	-3.71%
Next Trillion	-6.57%

A mixed bag…

Equity Mutual Funds

Best
IDFC Dynamic Bond Fund -Regular Plan-GROWTH	+2.41%
Edelweiss Emerging Leaders Fund – Growth	+2.39%
ICICI Prudential Very Aggressive – Regular Plan – Growth	+2.12%
Birla Sun Life Special Situations Fund – Growth	+2.03%
Birla Sun Life India Opportunities Fund – Growth – Regular Plan	+1.98%
Reliance Retirement Fund- Income Generation Scheme-Growth Plan – Growth Option	+1.89%
Principal Debt Savings Fund – MIP – Growth Option	+1.87%

Worst
Birla Sun Life International Equity Fund – Plan A – Growth – Regular Plan	-6.75%
Religare Invesco Pan European Equity Fund – Regular Plan – Growth Option	-7.54%
DSP BlackRock World Agriculture Fund – Regular Plan – Growth	-7.76%
Reliance Japan Equity Fund- Growth Plan- Growth Option	-7.80%
Mirae Asset Global Commodity Stocks – Growth Option	-8.13%
Birla Sun Life Commodity Equities Fund – Global Agri Plan – Growth – Regular Plan	-9.58%
DSP BlackRock World Mining Fund – Regular Plan – Growth	-10.52%

Bond Mutual Funds

Best
ICICI Prudential Long Term Gilt Fund – Regular Plan – Growth	+2.55%
SBI INFLATION INDEXED BOND FUND – REGULAR PLAN – GROWTH	+2.53%
JM G-Sec Fund – Growth Option	+2.52%
SBI MAGNUM GILT FUND – LONG TERM – REGULAR PLAN – GROWTH	+2.51%
L&T Gilt Fund-Growth	+2.51%
IDFC GSF-Provident Fund-Regular Plan-Growth	+2.51%
Reliance Gilt Securities Fund -Growth Plan – Growth Option	+2.50%

Worst
DWS Premier Bond Fund – Growth	+0.77%
Franklin India Income Builder Account-Growth	+0.75%
Reliance Corporate Bond Fund – Growth Option	+0.75%
Escorts Income Plan-Growth	+0.68%
Kotak Corporate Bond Fund- Standard Plan-Growth Option	+0.44%
Kotak Coporate Bond Fund- Retail Plan-Growth Option	+0.42%
JPMorgan India Corporate Debt Opportunities Fund – Regular Plan – Growth Option	-0.38%

Foreign Institutional Investments

Domestic Institutional Investments

Thought to sum up the month

There are four types of investment returns:

Consistently bad.
Mostly bad and occasionally good.
Mostly decent and occasionally good.
Consistently good and fraudulent.

Look at the long-term history of great investors, and you’ll find they occupy the third category.

Source: Good Investing Hurts

Categories Your Money Tags monthly

The Problem with Dynamic P/E Funds

shyam September 26, 2015

Executive Summary

Dynamic P/E funds use the market Price-to-Equity ratio to decide on allocation. If the P/E ratio is deemed too high, they allocate more to bonds or arbitrage strategies and if the P/E ratio is low, they allocate more towards equities. This logic sounds good on paper. However,

The market always appears expensive around turnarounds – investors miss out on the recovery trade.
The market always appears cheap during downturns – investors end up being long equities when bonds tend to outperform.
It doesn’t protect against volatility as a pure-play bond fund would (bad fit if you are risk-averse.)
It doesn’t give you the returns of a pure-play equity fund (bad fit if you are risk-seeking.)
Since it dampens volatility, it doesn’t make sense to dollar-cost-average (bad fit if your looking for an SIP.)

It is a solution looking for a problem.

Analysis

We thank Franklin Templeton for running the Dynamic PE Ratio Fund Of Funds to perform our analysis. This is probably the only fund where a true apples-to-apples comparison can be made between a pure-play equity fund, a pure-play bond fund and a dynamic PE fund.

The Dynamic PE fund invests x% in the Franklin India Short Term Income Plan and 100-x% in the Franklin India Bluechip Fund based on the P/E ratio. All we have to do is look at how a buy-and-hold strategy of the components compare to the Dynamic PE fund to gauge the effectiveness of the strategy.

Dynamic PE vs. pure-play Equity

Between 2007-01-02 and 2015-09-23, Franklin India Dynamic PE Ratio Fund of Funds-Growth’s IRR was 10.93% vs. Franklin India Bluechip Fund-Growth’s IRR of 11.53%

Similar returns. Lesser drawdowns. Lump-sum investors will probably be fine with these returns.

Dynamic PE vs. pure-play Bonds

First, let’s compare the Dynamic PE fund to the Short Term Income Plan.

Between 2007-01-02 and 2015-09-23, Dynamic PE Ratio had an IRR of 10.93% vs. Short-Term Income Plan’s IRR of 9.49%

For investors worried about drawdowns, just investing in the liquid fund would have given similar returns with a lot less risk. A 35% drawdown is a lot for a fund that gives bond-like returns.

A bond fund like the Birla Sun Life Dynamic Bond Fund, for example, had an IRR of 9.65% over the same time period

Conclusion

Using the P/E ratio for asset allocation is a bad idea. Investors would have experienced similar returns but with smaller drawdowns if they had invested in a regular bond fund instead.

Related: Dynamic PE Funds

Categories Investing Insight, Your Money Tags mutual funds

Index Update 25.09.2015

stockviz September 25, 2015September 25, 2015