Managing Sector Volatility

One part of how I manage the portfolio is monitoring and changing the volatility profile of each sector based on what I think is going on now and what I think comes next based on what is going on now. I mention this in passing far more than I actually spell out what this looks like. Yesterday on Fast Money Halftime they put a chart on the screen of Under Armor (UA) and client holding Nike (NKE) that serves as a very good way to illustrate this. I grabbed the same chart from BigCharts below. For my money UA and NKE are proxies for the same thing. Each stock has different trading characteristics but it makes sense that the correlation should be high even if the magnitude of the moves is noticeably different. Someone who holds NKE is favorably disposed to the demand for athletic apparel and equipment and the willingness for disposable income to continue to go toward the products–probably. At that level the story at UA is very similar. The two are a little different when you go more in depth. In an environment where the portfolio manager wanted to increase the volatility of the portfolio (presumably because the market was going to move higher) he could sell NKE and swap into UA. If correct about the market in this case then UA should go up more than NKE. As a practical matter NKE has enough volatility for me for being a discretionary stock so I don’t think I would do this exact swap but have done similar ones before. Part of our defensive strategy in 2008...

Managing Sector Volatility

One part of how I manage the portfolio is monitoring and changing the volatility profile of each sector based on what I think is going on now and what I think comes next based on what is going on now. I mention this in passing far more than I actually spell out what this looks like. Yesterday on Fast Money Halftime they put a chart on the screen of Under Armor (UA) and client holding Nike (NKE) that serves as a very good way to illustrate this. I grabbed the same chart from BigCharts below. For my money UA and NKE are proxies for the same thing. Each stock has different trading characteristics but it makes sense that the correlation should be high even if the magnitude of the moves is noticeably different. Someone who holds NKE is favorably disposed to the demand for athletic apparel and equipment and the willingness for disposable income to continue to go toward the products–probably. At that level the story at UA is very similar. The two are a little different when you go more in depth. In an environment where the portfolio manager wanted to increase the volatility of the portfolio (presumably because the market was going to move higher) he could sell NKE and swap into UA. If correct about the market in this case then UA should go up more than NKE. As a practical matter NKE has enough volatility for me for being a discretionary stock so I don’t think I would do this exact swap but have done similar ones before. Part of our defensive strategy in 2008...

Can It Be? A Toll Road ETF?

ETF provider Global X appears to be cranking up its golly-gee-whiz machine with an ETF filing that is right in the wheelhouse of a lot of my posts over the last couple of years. The filing consists of the following; Global X FTSE Toll Roads & Ports ETFGlobal X FTSE Railroads ETFGlobal X Farmland and Timberland ETFGlobal X Cement ETFGlobal X Advanced Materials ETF My primary point of contact at the firm talked about the Cement and Toll Road & Ports as being my ideas which I’m sure is part flattery but if it is true then maybe they’ll send me a bag of Quikrete if the cement fund lists (humor attempt). Zooming out a little bit the utility to these types of funds is in narrow based portfolios where individual stocks might be difficult in terms of feeling comfortable with information available or liquidity or anything else. That might seem like an obvious statement but what I mean is that it doesn’t really take a colossal leap of faith to buy shares of DuPont (DD) from the materials sector. At any given time DD could be a bad hold or a good hold but companies like this tend not to permanently impair capital, they are easy to access, they are widely followed by analysts (you may choose not to heed their opinion but they are sources of information) and you can find a lot of information yourself all over the web. A stock like DD is going to look a lot like its corresponding sector ETF, in this case iShares Materials (IYM), the vast majority of the time...

Can It Be? A Toll Road ETF?

ETF provider Global X appears to be cranking up its golly-gee-whiz machine with an ETF filing that is right in the wheelhouse of a lot of my posts over the last couple of years. The filing consists of the following; Global X FTSE Toll Roads & Ports ETFGlobal X FTSE Railroads ETFGlobal X Farmland and Timberland ETFGlobal X Cement ETFGlobal X Advanced Materials ETF My primary point of contact at the firm talked about the Cement and Toll Road & Ports as being my ideas which I’m sure is part flattery but if it is true then maybe they’ll send me a bag of Quikrete if the cement fund lists (humor attempt). Zooming out a little bit the utility to these types of funds is in narrow based portfolios where individual stocks might be difficult in terms of feeling comfortable with information available or liquidity or anything else. That might seem like an obvious statement but what I mean is that it doesn’t really take a colossal leap of faith to buy shares of DuPont (DD) from the materials sector. At any given time DD could be a bad hold or a good hold but companies like this tend not to permanently impair capital, they are easy to access, they are widely followed by analysts (you may choose not to heed their opinion but they are sources of information) and you can find a lot of information yourself all over the web. A stock like DD is going to look a lot like its corresponding sector ETF, in this case iShares Materials (IYM), the vast majority of the time...

Sunday Morning Coffee

We executed a swap for larger accounts over the last couple of weeks. We sold Partner Communications (PTNR) and then replaced it early on Friday with the EG Shares Emerging Market Telecom ETF (TGEM). PTNR turned out to be a poor proxy for both Israel and telecom as it turned out (maybe this will change in the future) but the massive dividend offset a large portion of the price decline, but not all of it. The stock had a couple of hiccups along the way in terms of missing estimates once or twice, still what I would call very good growth but with certain stocks, earnings misses obviously get punished. We’ve been slightly overweight telecom but the PTNR sale left us temporarily underweight which was not going to be the case very long. I was very positive of the concept of the EG Shares sector funds from the outset and when they finally listed the rest of them I liked what I saw under the hood of the telecom fund. Had PTNR worked out as hoped for I doubt I would own TGEM at the point but we did sell, I wanted a replacement and I think TGEM can be a good hold. From the top down I wanted high yielding foreign exposure that avoids Europe. From the bottom up I think telecom in China (the largest country in the fund) is one of the sectors that can be held and if China Mobile (CHL) ever gets going then this fund will do well. I also like being able to access South Africa in a consumer-ish sector and increase...

Sunday Morning Coffee

We executed a swap for larger accounts over the last couple of weeks. We sold Partner Communications (PTNR) and then replaced it early on Friday with the EG Shares Emerging Market Telecom ETF (TGEM). PTNR turned out to be a poor proxy for both Israel and telecom as it turned out (maybe this will change in the future) but the massive dividend offset a large portion of the price decline, but not all of it. The stock had a couple of hiccups along the way in terms of missing estimates once or twice, still what I would call very good growth but with certain stocks, earnings misses obviously get punished. We’ve been slightly overweight telecom but the PTNR sale left us temporarily underweight which was not going to be the case very long. I was very positive of the concept of the EG Shares sector funds from the outset and when they finally listed the rest of them I liked what I saw under the hood of the telecom fund. Had PTNR worked out as hoped for I doubt I would own TGEM at the point but we did sell, I wanted a replacement and I think TGEM can be a good hold. From the top down I wanted high yielding foreign exposure that avoids Europe. From the bottom up I think telecom in China (the largest country in the fund) is one of the sectors that can be held and if China Mobile (CHL) ever gets going then this fund will do well. I also like being able to access South Africa in a consumer-ish sector and increase...