Sunday Morning Coffee

Yesterday during the Olympics I spent a little time reading about Karl Popper, seriously, and while no one will confuse me for a Popper scholar I am in a slightly more critical (thinking) frame of mind than whatever is normal for me. With that in mind I stumbled across a couple of things that could be worth thinking about, critically or otherwise. First up was this comment left on the Seeking Alpha version of yesterday’s post (sorry if that link doesn’t work correctly) about the agriculture theme. A reader asked rhetorically “Why by an ETF, instead by a basket of AG stocks, you will control portfolio, and generally get a better return. I have often looked at various ETFs, but they seem to underperform their parallel markets.” Oh boy. His comment is a cornucopia of fallacies and other behavioral issues in just a few short words. There are always stocks related to the specialty of an ETF that will outperform the ETF but of course there are always stocks related to the specialty of an ETF that will lag the ETF. Within a fund some portion add to the return of the fund and some are a drag; this should be obvious. Perhaps the reader in question can “generally get a better return” but the implication of how easy it can be is very optimistic. Similar to the holdings in a fund, in a diversified portfolio whether it uses ETFs, stocks or both there will be holdings that do better than the market and some that lag. I would hope this too would be obvious. The proper expectation whether...

Sunday Morning Coffee

Yesterday during the Olympics I spent a little time reading about Karl Popper, seriously, and while no one will confuse me for a Popper scholar I am in a slightly more critical (thinking) frame of mind than whatever is normal for me. With that in mind I stumbled across a couple of things that could be worth thinking about, critically or otherwise. First up was this comment left on the Seeking Alpha version of yesterday’s post (sorry if that link doesn’t work correctly) about the agriculture theme. A reader asked rhetorically “Why by an ETF, instead by a basket of AG stocks, you will control portfolio, and generally get a better return. I have often looked at various ETFs, but they seem to underperform their parallel markets.” Oh boy. His comment is a cornucopia of fallacies and other behavioral issues in just a few short words. There are always stocks related to the specialty of an ETF that will outperform the ETF but of course there are always stocks related to the specialty of an ETF that will lag the ETF. Within a fund some portion add to the return of the fund and some are a drag; this should be obvious. Perhaps the reader in question can “generally get a better return” but the implication of how easy it can be is very optimistic. Similar to the holdings in a fund, in a diversified portfolio whether it uses ETFs, stocks or both there will be holdings that do better than the market and some that lag. I would hope this too would be obvious. The proper expectation whether...

The Big Picture for the Week of February 28, 2010

Another assist today from Market Folly as they review an agricultural fund from Passport Capital. In the report that Market folly published Passport disclosed being up 10.3% in the period reported versus 66.6% for Market Vectors Agribusiness ETF (MOO). I recently added this ETF to client accounts. With these sorts of things you can only find out what they are willing to tell you so only a few of the holdings were disclosed. Those holdings were Imperial Sugar (IPSU) 12% of the fund, CF Industries (CF) 10% of the fund, Pilgrim’s Pride (PPC) 5% and Makhteshim-Agan Industries (MAIXY) which is an Israeli company at 5%. Also disclosed were the sub-industry allocations which were Ag processors (sugar, corn, ethanol, and oilseed processors) 21% long exposure, protein processing and production (poultry, beef, and dairy) 21% long exposure and ag inputs (ag equipment, fertilizer, seed and crop protection) 23% long exposure. I’ve worded it as it was in the report. The fund can go short but I am not sure what portion of the fund is in cash or in short positions but there was mention in the commentary that attributed some (maybe all?) of the lag to the expectation of a big market correction in 2009 that never came (the fund was implemented on March 1, 2009). There are all sorts of things to learn here. I may be wrong but it seems like the lag was a market call that was wrong not poor stock selection within the theme, indeed although we don’t know when things were bought and sold in the fund the holdings disclosed ranged in performance from...

The Big Picture for the Week of February 28, 2010

Another assist today from Market Folly as they review an agricultural fund from Passport Capital. In the report that Market folly published Passport disclosed being up 10.3% in the period reported versus 66.6% for Market Vectors Agribusiness ETF (MOO). I recently added this ETF to client accounts. With these sorts of things you can only find out what they are willing to tell you so only a few of the holdings were disclosed. Those holdings were Imperial Sugar (IPSU) 12% of the fund, CF Industries (CF) 10% of the fund, Pilgrim’s Pride (PPC) 5% and Makhteshim-Agan Industries (MAIXY) which is an Israeli company at 5%. Also disclosed were the sub-industry allocations which were Ag processors (sugar, corn, ethanol, and oilseed processors) 21% long exposure, protein processing and production (poultry, beef, and dairy) 21% long exposure and ag inputs (ag equipment, fertilizer, seed and crop protection) 23% long exposure. I’ve worded it as it was in the report. The fund can go short but I am not sure what portion of the fund is in cash or in short positions but there was mention in the commentary that attributed some (maybe all?) of the lag to the expectation of a big market correction in 2009 that never came (the fund was implemented on March 1, 2009). There are all sorts of things to learn here. I may be wrong but it seems like the lag was a market call that was wrong not poor stock selection within the theme, indeed although we don’t know when things were bought and sold in the fund the holdings disclosed ranged in performance from...

Digging In To Portfolio Evolution

Long time readers may know my fascination with the evolution of portfolio construction and the exploration of “new” asset classes and market segments. It is worth noting that more time is spent on the exploration than actual implementation but I view a big part of the task as being research and study in the hopes of adding value in the future even if the study simply tells you what not to do. It is truly fascinating. Embedded in the topic is seeking different ways to construct a portfolio to account for short term events or bigger picture changes in the world and whether the current situation is a short term event or a change in the big picture. This brings us to the latest recap of the Absolute Macro Fund run by Hugh Hendry from Ececlectica via Market Folly. Hendry is a deflationist these days. I don’t necessarily agree with everything he says or run out to copy his trades but he is very insightful and the positions he puts on can convey several messages. Per the Market Folly post Hendry was up 31% in 2008 and down 8% in 2009. Only the fund’s top ten holdings were disclosed. The largest by far is 19.8% of the fund in EUR-LVL. He is short the Latvian lat (LVL) against the euro. LVL is pegged against the euro and the peg is causing all sorts of problems for Latvia as the government won’t give up the peg. At some point you would think it would have to be depegged or otherwise adjusted and apparently Hendry thinks the same thing. I first...