It comes down to choosing industries that you think will prosper, then optimize your ranking system based on the industry.
Unfortunately, Aerospace & Defense suffered from the Boeing 737 Max debacle followed by the pandemic which is a disaster for the aerospace industry. This has resulted in very poor results for that particular DM.
Cloud computing, on the other hand, is benefiting dramatically from the pandemic as there is a seismic shift to work-from-home and online retail.
Once you have chosen a particular industry then RS optimization comes into play. If you believe that intelligence wins out here then simply choose the factors you believe in and run with it. For the rest of us, RS optimization is a lengthy process if you want it to be. Or you can simply choose the P123 ranking system that gives you the best results. Usually that is GreenBlatt by the way.
In the case of cloud computing, revenue growth is the most important factor. Forget value factors and earnings.
I use the constituents of SKYY ETF which are X-as-a-Service stocks. I periodically load the constituents into an InList which is used as the custom universe.
can you tell us where you can find the constituents for ETFs ? I have a hard time finding them. Yahoo Finance has only 10 stocks of each ETF listed. Is there a site that has this data?
Thanks.
Thank you very much for your transparency. It looks like it is a growth etf current holdings are 64 stocks.
Please, kindly help, whether Sales growth Q/Q > 0, and Gross Margin TTM > 30% and Price2SalesTTM > 3 and Forword PE TTM > 15 are good criteria for growth stocks.
Here, screen shot from morning star is for reference
(In screen average holdings for this category fundamentals Pr2Sales>3, P/E >20 and GrossMarginTTM>40%).
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As i used to work with value stocks with Price2SalesTTM <= 3 Forword PE TTM <= 15; buy 52 weeks low, i find difficulty to over come this value habits.
As you following growth ETF and you are more experienced, please, guide me.
I would leave P/E and P/S out of it. The four factors I use now are the 3-year composite sales growth, low operational leverage (estimate), consistency of revenue growth, and sales surprises. I won’t get more explicit than that as this is my Pixie dust.
Steve,
thanks for the information.
I hope P123 will soon give us the ETF constituents. That would be a valuable addition.
But you have already done great work!
Everybody is hiding their historic holdings data. Last time I looked, iShares had monthly data of their ETF holdings back for several years which one could download and then compile it into a stock factor file on P123.
Now all they have is Dec-31-2019, Mar-31-2020, and yesterday’s holdings. That is pretty useless for backtesting. I suppose they are selling this data now to make a few extra bucks.
I give Steve a lot of credit for being able to forsee the sectors (Cloud Computing, Aerospace & Defense) that did well in the last few years. Aerospace & Defense tanked lately but did a lot better before & is still beating the market over the full term of his port. But I wonder if it would have been better to hold the ETFs (SKYY & XAR) than trying to trade individual stocks. From the inception of Steve’s ports to date (April 29) both of these ETFs have very similar results to the ports, even slightly ahead. It seems when the ETF is narrowly focused it may not be worth trying to trade constituent stocks (although this is a very small sample size). There would also be tax advantage of holding ETFs over trading stocks especially if there is considerable turnover in the ports.
Thank you for sharing knowledge and filter criteria on growth stock.
Do you find any Value ETF or Value Multual Fund which outperform SP500 consistently for last 5 years or 10 years.
world famous SEQUX value fund 400% return from 2009 to 2015 around 6 years.
0% return next 5 years.
It replicate performance of largecap value models in p123.
You are investing towards value stocks or growth stocks for last couple of years.
I just discovered a couple of pretty nifty ETFs recently. First there is EMTY ProShares Decline of the Retail Store ETF which makes a pretty good hedge for the current market conditions.
Then there is this long/short ETF: CLIX Long Online/Short Stores ETF
I am just following up here on AZ’s comment. The performance of my Cloud Computing DM has been “unremarkable” in comparison with the SKYY ETF. I have attached the performance graphs in this post below.
However, I would also like to show how the DM performed after initial release (first year) and also after it was revised on Nov 20, 2020. The outperformance of the DM post-optimization has been pretty good. The problem is that I did not re-optimize periodically once I initially released the model. That is my bad.
These graphs are only anecdotal and of course not exhaustive proof for anything. But they do support my rule of thumb which is to only run an optimized model out-of-sample for 1/4th to 1/5th the time period of the in-sample optimization period. For my models, I optimize (in sample) over the last 5 years. Then I allow the portfolio to run for one year. Then it should be re-optimized again for the five years and allowed to run for one year i.e. rinse and repeat.
As an aside, Cloud Computing is beating the pants off of every other market niche. I encourage everyone to get in on this, buy the SKYY ETF or whatever. We are witnessing the fourth industrial revolution.
There is also a Cloud ETF that Wisdom Tree put out - $WCLD. Its only been out since September and aims to reflect an emerging cloud index that Nasdaq created. Index methodology is listed below, and could probably be duplicated rather easily on P123 creating a custom universe. I have no doubt some one is going to come away as the next Amazon out of this transition, but I’m not savvy enough in the space to place individual bets. It’s been a nice counter balance to some of my small cap value ports. These things are just so low capital expenditure that once they hit enough revenue to get their head above profitability, like Dropbox recently did, they’re incredible compounding machines.
There is also an upcoming ETF that I am anxiously waiting for. It is a Work-From-Home ETF and will be run by Direxion. I understand the symbol will be WFH.
