Thursday, July 30, 2015

FVD: an Interesting Quantitative Value ETF

If someone asked me what is my version of a minimalistic long-term portfolio, I would answer this should be some quantitative value ETF mixed with a bit of treasury for better stability. My choice of quant value fund until recently was PowerShares Dynamic Large Cap Value ETF (PWV, open since 2005). I also know about QVAL, but it has only less than a year of data.

Lately, I came across First Trust Value Line Dividend ETF (FVD). Trading since 2003, that means almost two more years of data than PWV, which is always nice. They implement Value Line Ranking System, you can read about it here.

Since FVD uses a stock database of 1700 stocks, the closest broad market benchmark is S&P 1500 with ETF called iShares Core S&P Total US Stock Mkt (ITOT). Here is a pair chart FVD vs. ITOT in volatility-normalized scale:

Now let's check against a value benchmark, for example, iShares Russell 1000 Value (IWD):

As you can see, FVD outperforms its benchmarks.

And finally this is how a volatility-rebalanced portfolio of 0.6 FVD + 0.4 TLT looks like:

Dividends reinvested. Red equity line includes rebalancing expences. Leverage cost not included.

Left scale reflects portfolio cumulative returns assuming volatility target of 20%, that produces average returns around 21% (minus leverage expenses) and the 2007-2009 drawdown of about 30%. Sharpe ratio is about 1.2.

The information in this post in not an investment advice. This post is a research only.

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