Category Archives: Equities

Indices Rebalance Friday

Index funds could experience slightly more trading than usual on Friday.  Company’s shares outstanding change from time to time due to buy-backs, issuance for employee options or other events. The percentage of shares in float — not closely held — also change from time to time.  In theory S&P Dow Jones could update data on Read more […]

Volatility – Are You The New Kid On The Block?

Just an aggravating stat for all those who keep talking about the enormous volatility. The historical average intraday high price over the intraday low price is a swing of 1.482%, with a 1% variance (high / low) occurring 71.3% of the time over the past 50 years. The 2013 year-to-date average is a 0.916% variance, Read more […]

A PIP Off the Old Block

The staff of the Financial Industry Regulatory Authority (FINRA) recently issued an opinion letter discussing the use of “pre-inception index performance (PIP)” data in communications about exchange-traded financial instruments.  Importantly, the letter permits the use of PIP data (i.e., backtested or simulated results) in presentations to institutions (although not to retail investors). No good deed Read more […]

Low Volatility: Success or Failure?

One of the consequences of May’s shift in leadership of the U.S. equity market from defensive to cyclical sectors has been the underperformance of most (if not all) low volatility strategies. Does this mean, as some commentators have suggested (e.g. see http://www.indexuniverse.com/hot-topics/18860-when-low-volatilitty-bites-back.html?showall=&fullart=1&start=4), that low volatility strategies “failed?” Making a judgment of success or failure, about Read more […]

The Other Shoe?

One of the striking things about May’s U.S. equity performance was that although the market continued the strength it had shown between January through April, it was strong in a different way. http://us.spindices.com/documents/commentary/dashboard-us-20130531.pdf For example, the best-performing sector in the first four months of the year was Utilities (up 19.74%); in May the Utilities sector Read more […]

Thinking About P/E Ratios

The chart below is  a scatter diagram comparing the P/E ratio to the price return on the S&P 500 over the next ten years.  P/E is defined as each month’s level of the S&P 500 divided by the earnings per share on the 500 over the trailing 12 months. Both the P/E and the index Read more […]

History, Real and Simulated

Show me a man who’s never been burned by relying on a backtest and I’ll show you a man who’s never relied on a backtest at all  (either that or a fictional character).  Skepticism toward backtested results is endemic among investment professionals, and rightly so.  And yet… when a new concept comes along, backtested performance Read more […]

Tennis Without a Net

Indices existed well before the launch of indexed financial products. The Dow Jones Industrial Average, e.g., goes back to 1896; the first indexed institutional portfolios appeared in the 1970s, the first index mutual fund in 1976, and the first index-tracking exchange traded funds in the 1990s. In all these cases, the index provider was independent Read more […]

Equity Auguries?

The market for credit default swaps is typically not well-understood by equity investors (myself emphatically included).  This is unfortunate, since the price of insuring a company’s bonds (which is what a CDS measures) can sometimes provide insight into the same company’s equity securities. For example, in September 2012, the S&P 500 financials sector began to Read more […]