Monday, March 17, 2014

European ETFs of various capitalizations: relative dinamics

Let’s take a look at relative dynamics of 3 european stock ETF with different capitalization metrics:

1. Large cap ETF SPDR FEZ, tracking DJ EURO STOXX 50 Index.
2. Large and middle cap ETF iShares IEV, tracking S&P Europe 350 Index.
3. Small cap ETF WisdomTree DFE, tracking WisdomTree Europe SmallCap Dividend Index.

First let’s take a look at volatility-adjusted pair dynamics for most representative broad market fund IEV against whole-world fund Vanguard Total VT:

As you can see, Europe under-performance seems to end at 2013 and now Europe looks turning to recovery.

Small cap DFE against broad market IEV:

Small cap lift-off in Europe continues.

Broad market IEV against large cap FEZ gives very interesting picture:

Obviously, there is some kind of long-term (at least since 2003) factor, pressing large cap down. By the way, this factor is very convenient to trade. EURO STOXX 50 Index can by shorted via its very liquid futures. And marginal requirements for an IEV equivalent VGK are very relaxed (at least in InteractiveBrokers).

Volatility-adjusted pair research best performed with Cognitum Rebalancer.

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