S&P Dow Jones ETF Masterclass Event

On Thursday, June 23 2016, I attended the S&P Dow Jones Indices ETF Masterclass at downtown Toronto. This is the second year SPDJ hosts this kind of event and I attened both. Speakers are mainly from indices provider (SPDJ), ETF issuers, ETF strategists. The event was very well orgainized and informative.

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Although I learned a lot at the product and technique level, for me the most important takeaway from this event is the confidence of the direction I have choosen: to be a subject matter expert of ETFs. We are fortunate to be in the North America where the ETF markets are more advanced than the rest of the world. There are more than 2500 ETFs, 170 providers and 800 strategists combined in US and Canada. The ecosystem is well developed. At the same time, the markets are still developing rapidly and have lots of potential. The future is bright and exciting.

To achieve the goal of becoming an ETF expert, at least 2 layers should be done.

Layer 1, digest the products. This is very time consuming but it is absolutely essential. You need to read through the documents, understand the methodologies. A good way to enhance understanding is to compare similar products and find out their differences.

Layer 2, use ETFs to build portfolios. After you mastered the characteristics of different products, you’ll move to the state of utilizing them. Build a low cost and well diversified ETF require knowledge, discipline and patience. There are many lures and traps. Simplicity is the ultimate sophistication.

These are the focus of my self-learning plan in the second half of 2016.

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CSTA Annual General Meeting Takeaways

Today I attended the Canadian Society of Technical Analysts (CSTA) 30th general meeting at Sheraton Toronto. This is a great event that I got the opportunities to meet masters and practitioners of technical analysis, listened to their thoughtful sharings. It happened that I was sitting next to Mr. Ron Meisels, the founder and first President of the Canadian Society of Technical Analysts (CSTA). I also talked to Mr. Larry Berman, he won the most awards today due to his distinguished contribution to the technical analysis in Canada.

A few takeaways from the event:

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1, Technical analysis can explain something fundamental analysis cannot. This is true becasue fundamentals will not change as frequent as prices. If you can master both, you will be able to understand market behaviors more convincingly.

2, CFA + CMT. Mr. Larry Berman says, CFA helps you to get the job, CMT helps you keep the job. I totally agree with his point that a designation of technical analysis will sharpen your skills and boost your career.

3, Technology development make it possible for more people to utilize technical analysis. 20 years ago, due to technology limitation, general public don’t have the  convenient access to technical analysis. Today we have high speed internet, real-time data of global exhanges, customized screening tools, high performance computers can produce any technical analysis as you want. Sophisticated trading platforms now are available to common individual investors. All of these will make technical analysis more prosperous in the coming years!

4, Technical analysis is not only technics, but also arts. With the same chart, different technician may get different conclusions. You still need experience and intuiton to your final decisions.

5, Success comes from hard working. Success doesn’t come by chance. Many successful technical anaysts I meet today, they worked in the field for decades, from 6:00am to 12:00pm day after day. This let me recall a principle of 10,000 hours. If you want to be a specialist in any field, you need at least 10,000 hours deliberate practice.

 

Adaptive vs Dynamic: Comparison of two new currency hedged Japan ETF

Probably the majority of investors would agree that currencies are the most difficult markets to forecast. This year, the movement of Japanese Yen and Euro against US dollar good examples of currencies unpredicatability. Although Japan and Euro Zone are in the negative interest rate territory, US is going to increase interest rate, Yen appreciated 13.0%,  Euro appreciated 4.4%, against USD respectively. They are out of the majority’s predition.

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At the beginning of 2016, currency hedged ETFs evolved into a new stage. Almost at the same time, iShares and WisdomTree launched their new currency hedged ETFs, and the ideas are very similar. On Jan. 5 2016, iShares launched 3 “Adaptive” currency hedged ETFs: DEFA (iShares Adaptive Currency Hedged MSCI EAFE), DEZU (iShares Adaptive Currency Hedged MSCI Eurozone), DEWJ (iShares Adaptive Currency Hedged MSCI Japan). On Jan. 7 2016, WisdomTree launched 4 “Dynamic” currency hedged ETFs: DDWM (WisdomTree Dynamic Currency Hedged International Equity), DDLS (WisdomTree Dynamic Currency Hedged International SmallCap Equity), DDEZ (WisdomTree Dynamic Currency Hedged Europe Equity), DDJP (WisdomTree Dynamic Currency Hedged Japan Equity).

By comparing DEWJ and DDJP, we can know more about how these new currency hedge strategies work.

DEWJ vs DDJP

From the table above, we can find that two funds are quite similar in almost all aspects. The major difference is the hedge ratio options: DEWJ has only 5 fixed options, while DDJP can be anywhere from 0 to 100%. Currently, DEWJ hedged 75% of its underlying assets, while DDJP hedged slightly above 50%. Due to the strong appreciation of Japanese Yen in June, both funds forward contracts (short Yen long USD) lose money.

Another notable point is that both funds are very small by net assets. In the iShares Japan fund series, EWJ is giant with net assets 14.7 billion, HEWJ (the fully hedged version of EWJ) has a net assets of 610 million, DEWJ (the adaptive hedged version of EWJ) has only 3.3 million. In the WisdomTree family, DXJ (fully hedged) has 7 billion, while DDJP has only 4.5 million. In the long run, if these adaptive/dynamic strategies really work, these funds will gain popularity.