Hire Someone Or Go It Alone? Yes!

My latest for Alpha Baskets is titled Hire Someone Or Go It Alone? Yes! and looks at a couple of WSJ journals about whether investors should hire an advisor. There is of course a very wide range of what is right for each person. If you are reading this as an individual investor this is an important one for you to get right. You may not need an advisor but it would be bad to get that one wrong. If you are an advisor reading this, the reality is that not everyone does need professional help. From the post; A big checkmark in the plus column for hiring an advisor as pointed out in the article is eliminating emotion. The part above about coming out ok also assumes not panicking along the way. The above new investor who spends a day learning about index funds won’t be able to learn what it felt like as the market was cutting in half and will not know how they would react in the face of that sort of decline until they are exposed to it. Please click through to read the rest. Also, this week’s Market Update has also been...

"Volatility is Not an Asset Class"

The WSJ had a blog post further detailing the peculiar odyssey of the Velocity Shares Daily 2x VIX Short Term ETN (TVIX). A lengthy part of the post was devoted to the thoughts of one portfolio manager who among other things said that volatility is an indicator not an asset class. The chart shows a spectacular implosion in the price of the shares. As mentioned last week the crazy action is mostly about a disruption in the normal creation/redemption process. There are several types of glitches/malfunctions that can create serious problems but this event seems to be especially remarkable for the number of buzzwords this fund takes in; ETN, leveraged, futures, VIX. There is probably no way to know what portion of the volume or AUM in TVIX is for speculation and what portion is from hedging with the hedge idea being as stocks go down the VIX will go up and a 2x VIX will go up more. The idea with speculating on VIX in one form or another is that the VIX moves around a lot in both directions which makes for good action for speculative trading. The idea of volatility being an asset class would seem to be in the context of building a portfolio that includes alternative asset classes that have low correlations to equities. This could be thought of along the lines of market neutral funds, absolute return funds, merger arbitrage funds and any other number of so called hedge fund-like products. TVIX is not the only VIX product with questionable benefit. The troubles with VXX have been widely written about so you can...

“Volatility is Not an Asset Class”

The WSJ had a blog post further detailing the peculiar odyssey of the Velocity Shares Daily 2x VIX Short Term ETN (TVIX). A lengthy part of the post was devoted to the thoughts of one portfolio manager who among other things said that volatility is an indicator not an asset class. The chart shows a spectacular implosion in the price of the shares. As mentioned last week the crazy action is mostly about a disruption in the normal creation/redemption process. There are several types of glitches/malfunctions that can create serious problems but this event seems to be especially remarkable for the number of buzzwords this fund takes in; ETN, leveraged, futures, VIX. There is probably no way to know what portion of the volume or AUM in TVIX is for speculation and what portion is from hedging with the hedge idea being as stocks go down the VIX will go up and a 2x VIX will go up more. The idea with speculating on VIX in one form or another is that the VIX moves around a lot in both directions which makes for good action for speculative trading. The idea of volatility being an asset class would seem to be in the context of building a portfolio that includes alternative asset classes that have low correlations to equities. This could be thought of along the lines of market neutral funds, absolute return funds, merger arbitrage funds and any other number of so called hedge fund-like products. TVIX is not the only VIX product with questionable benefit. The troubles with VXX have been widely written about so you can...

The Big Picture For The Week Of March 25. 2012

A few brief items this morning. First up is the meltdown of the Velocity Shares Daily 2x VIX Short Term ETN which is more commonly referred to by its symbol which is TVIX. This is a levered ETN that tracks the futures market for the VIX index. Futures oriented products seem to have the greatest potential for “malfunctioning” one way or another. The issue with TVIX is that issuer Credit Suisse had to stop creations due to internal size limits which caused a massive variance between the market price and IIV (the ETP equivalent of NAV)–it just blew up. Any exchange traded product can have some sort of problem like trading at a discount or premium to its IIV but this is rarer with plain vanilla stock and bond ETFs and when it has happened with plain vanilla ETFs it has lasted only a short time. The next time there is a flash crash or other problem like with bond ETFs in late 2008 I will again assume short lived blip and not sell. I would think issues like this with exchange traded notes would also be short lived but something like TVIX has a lot more going on under the hood than something like the iShares Global Nuclear Index Fund (NUCL). For more in depth coverage of TVIX you can also read this from Barron’s and also the Kid Dynamite blog as several blog posts about it. The BATS IPO came off as probably the strangest debut of all time. BATS is a stock exchange and shares in its own IPO malfunctioned. As CNBC reported it there was...

The Big Picture For The Week Of March 25. 2012

A few brief items this morning. First up is the meltdown of the Velocity Shares Daily 2x VIX Short Term ETN which is more commonly referred to by its symbol which is TVIX. This is a levered ETN that tracks the futures market for the VIX index. Futures oriented products seem to have the greatest potential for “malfunctioning” one way or another. The issue with TVIX is that issuer Credit Suisse had to stop creations due to internal size limits which caused a massive variance between the market price and IIV (the ETP equivalent of NAV)–it just blew up. Any exchange traded product can have some sort of problem like trading at a discount or premium to its IIV but this is rarer with plain vanilla stock and bond ETFs and when it has happened with plain vanilla ETFs it has lasted only a short time. The next time there is a flash crash or other problem like with bond ETFs in late 2008 I will again assume short lived blip and not sell. I would think issues like this with exchange traded notes would also be short lived but something like TVIX has a lot more going on under the hood than something like the iShares Global Nuclear Index Fund (NUCL). For more in depth coverage of TVIX you can also read this from Barron’s and also the Kid Dynamite blog as several blog posts about it. The BATS IPO came off as probably the strangest debut of all time. BATS is a stock exchange and shares in its own IPO malfunctioned. As CNBC reported it there was...

The Proper Context of Low Beta ETFs

IndexUniverse had a post that explored some of the nuances of the PowerShares Low Volatility ETF (SPLV) and the PowerShares High Beta ETF (SPHB). The article was a little muddled in that it seemed to start out by making the argument for why now might be a good time to buy SPHB but then the author talked about why he does not like the composition of SPHB. First, to the idea of some sort of tactical strategy of swapping back and forth between the two (this is what I think the first part of the article is about) it is certainly possible even if not easy to time. Some sort of objective trigger (but probably not a 200 DMA breach) could be used such that you lighten up on volatility after a big move up and you increase volatility after a big drop. It’s a lot easier to articulate this than execute it; really not my type of trade. I would argue that after the great run in the market and for SPHB since October, the time frame chosen in the IU article, we are probably closer to SPLV being the better hold. Since October, per the article, SPHB is up 36%, SPY is up 24% and SPLV is up 15%. The author brings up the notion of being left behind with SPLV in an up move. That makes sense as typically it is the higher octane names that move up the most in a big lift for the broad market. For people who would rather not try to tactically time swapping low and high beta the context of...