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Subject:  Diversifying Away from Bonds? Date:  9/19/2011  3:03 PM
Author:  charliebonds Number:  33328 of 36940

On a day like today, when equity markets are gagging over Geithner’s proposal to bail-out US banks (by bailing out Euro banks), and when dozens of ETFs are making one-day gains that rival the one-year gains typically offered by a properly-diversified bond portfolio, it’s hard not to become a bit envious. To that end, I grabbed a list of the 1,200 some ETFs there are and filtered them by this rule:

=IF(AND(ABS(G1171)>0.039,H1171>100000), G1171, "") [where 0.039 is the average of the absolute value of max/min values for all fund and then detrended by their leveraging factor, and 100000 is Vol as of mid-afternoon]

The result is a list of 68 funds (or roughly 5% of the total list) that are today’s “market movers” and would seem to have enough volume to be tradable. Predictably, fund family names like Direxion and ProShares show up, and long-only shops, like WisdomTree and Vanguard, don’t. Surprisingly, the list of major winners (typically inverses) and losers (which would become one’s shorts) aren’t confined to just Euro and emerging market funds, but include a lot of commodity funds and some sectors/industries that won’t do well in the coming global economic downturn. So there’s lots of paths to choose from diversifying away from bonds. Further, if the P/L and Vol constraints are relaxed a bit (to 0.035 and 80000, resp.), the list of names increases to 98, which has the surprising effect of excluding the broad benchmark, SPY, and anything doing worse than it and/or being thinly-traded. So what might seem to be an arbitrary choice of filters ends up being a well-motivated one.
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