ETF (exchange-traded fund) a type of passive fund that is designed to reflect the behavior of specific indices, or sectors. With this, we can achieve exposure to a particular market, sector or country while keeping costs low. Thanks to this, we don't have to buy, for example, all 500 companies in the S&P 500 index. So we decided to check which of these funds could achieve the most interesting results in the last 3 months.
Fund performance
Of the 200 funds surveyed, 24 percent had a positive return. The average volatility of the fund, measured by standard deviation, during the period was 15.12 percent. The largest index, the S&P 500, fell 7.17 percent during the period, reaching a volatility of 12.24 percent. It seems that based on this information, we can see the current moment of the business cycle.
The best of the best
If we wanted to juxtapose the best winners, we could compare their rates of return. However, it seems that such a comparison does not take into account the risk aspect of a given investment. For this purpose, we will use the Sharpe ratio, that is, the relationship of the achieved rate of return to the level of total risk (standard deviation), to measure the effectiveness of the investment. For this indicator, it is assumed that values above 50% are considered to be an outperformance of the market average over a long period.
The iShares MSCI Turkey ETF (TUR) had the highest return, at 47.68 percent over the past quarter. The fund is designed to seek to track the investment performance of a broad index composed of Turkish stocks. It consists of 27.16 percent Turkish industrial companies and 19.47 percent material processing companies. The result of significant growth may have been influenced by rising inflation, which currently stands at, as much as 85.51 percent. Despite such a high decline in the value of the Turkish lira, the dollar-denominated ETF achieved such a result. Sharp for the period was 220.46 percent.
Source: MT5, TUR, Weekly
The second best return was achieved by the VanEck Oil Services ETF (OIH). The fund is designed to track the overall performance of companies listed in the United States and engaged in upstream oil services, which include oil equipment, oil services or drilling. Consisting of 25 companies, the fund's performance in the most recent quarter was 44.67 percent, with the Sharpe ratio at 185.51 percent. It appears that such strong performance may have been due to the oil market.
In the final podium spot was the Invesco Energy S&P US Select Sector UCITS ETF (XLES), which, like its predecessor, mimics the performance of the US energy sector. This fund consisting of companies from the S&P 500 (US500) index, unlike its predecessor, is geared only towards energy companies. During the period under review, it achieved a performance of 29.77 percent with a Sharpe ratio of 182.51 percent. The result also seems to have been influenced by the price of oil
The safest
Among the funds with positive returns and the lowest volatility was the Xtrackers MSCI Japan UCITS ETF (XMUJ). A fund that gives exposure to key Japanese companies that hold a minimum of 85 percent of a given market. In addition, this dollar-denominated fund hedges against changes in the dollar-Japanese yen (USD/JPY) exchange rate. Volatility during the quarter under review was only 6.05 percent, and the fund was up 1.15 percent despite fluctuations in Japan's main NIKKEI 225 (JP225) index. The Sharpe ratio was 18.99 percent during the period under review.
Source: MT5, XMUJ, Daily
The iShares MSCI India UCITS ETF (NDIA), which seems to have been growing rapidly for years, came in second with exposure to the Indian economy. What may seem interesting is that it is 24.73 percent composed of companies in the financial industry. In second place in terms of weight are companies from the information technology industry accounting for 15.02 percent of the fund. The volatility for the stated period was 8.09 percent with a performance of 3.47 percent. This gives a performance-to-volatility ratio (Sharpe's) of 42.89 percent.
Specially highlighted ones include the AXS First Priority CLO Bond ETF (AAA), which boasts a volatility of just 0.91 percent despite a -0.98 percent drop in value. Sharp Under normal circumstances, this fund invests at least 80 percent of its assets in AAA-rated tranches of top-priority debt backed by credit obligations. This fund can invest in bonds of any maturity. In addition, this fund is actively managed and does not seek to mimic the performance of any particular index.
Most independent
When we want to reduce portfolio risk, according to portfolio theory, we should look for asset classes that are least correlated with each other. We usually measure the level of dependence by the correlation level of two assets, where a correlation value of 1 means perfectly correlated assets, a value of -1 perfectly opposite correlated (when one goes up, the other goes down exactly the same amount), and a value of 0 means no dependence at all.
The lowest dependency ratio relative to the largest S&P 500 index (US500) was demonstrated by the United States Oil Fund, LP (USO), which seeks to reflect changes in the price of oil by investing in futures contracts on this commodity with various maturities. After a period of three months, the fund achieved a return of 6.02 percent with a risk of 18.87 percent. The correlation index (correlation) was 0.24, which may indicate a low correlation to the broad market. The Sharpe for this fund was 31.93 percent.
Source: MT5, USO, Daily
Author: Grzegorz Dróżdż, a Market Analyst of Conotoxia Ltd. (Conotoxia investment service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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