Winning With ETF Strategies: Top Asset Managers Share Their Methods for Beating the Market

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222

Published Date

2012

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In Winning With ETF Strategies, Max Isaacman clearly explain how ETFs can help you: gain access to precious metals and other non-market asset classes; profit in unsettled markets and prepare for the next bull market; shift portfolio exposure to the sectors, regions, and asset classes most likely to earn profits; allocate your assets more flexibly and precisely; uncover value opportunities in areas that have underperformed; provide tactical opportunities to generate absolute return; strengthen risk management, and much more.

Introduction:

The past ten years have been frustrating for stock market investors with the market moving mostly sideways, making it difficult to make money by buying and holding stocks. In a recent presentation, I told a crowd of individual investors that they can make money by buying Exchange Traded Funds (ETFs) and holding them for the longer term. They laughed, as if I was telling a joke. I wasn’t surprised that people would be skeptical, but that’s a good way to recognize the market bottom—when people laugh at the idea that the market will go up—and that is a good time to buy.

We know that markets fluctuate and always change, and often, markets do exactly what most people think they will not do. This sideways market could continue for a while, and in the mean time, investors and traders are making money or at least limiting losses in a variety of ways. Many use the new ETFs to go long or short, to trade currencies, to trade with a portion of their portfolio, to buy undervalued sectors or short overvalued sectors, and to use other strategies to trade and find ways to get varied asset-class exposure.

Market cycles have to be identified and considered. Before buying, you should know at what point in the cycle the market is at and where it might head. Markets move in cycles, and these cycles take years to complete. In this book, we show that according to research by Rydex/SGI Investments, in the past 113 years, there were 4 bull markets consisting of 42 years and 4 bear markets consisting of 71 years. Bull markets lasted an average of 10 years; bear markets lasted an average of 18 years.

Even though there were fewer bull market years, the cumulative gains in the bull markets were substantial, and the cumulative losses or gains in the bear market years were slight. The bear years were more sideways markets than big down moves. Bear markets usually hang around, having periods of gloom interspersed with periods of hope. This is the market cycle we have been in for about ten years. Bull markets are usually vigorous and active, with big gains, sideways-to-down movements, and then more big gains.

Because there are more bear market years, you must get the best returns you can in those years, and you must try to cut down on losses. This can be attempted using a wide array of ETFs, such as sector ETFs, foreign country ETFs, non-stock market-correlated ETFs, and inverse ETFs, that enable you to short the market. History suggests that if you stay in bear markets, you will lose a little money, but bull markets return and are worth the wait. Unless the U.S. is in a long-term, irreversible decline—and there are those who think this is true, but I do not—history will repeat itself and there will be a bull market. The U.S. is a major player in the global economy and should continue to grow along with the international community.

Sections of this book explain how ETFs work, why they’re the perfect securities for the current and future market, and which ones you should buy and why. To better understand ETFs, we examine where they come from and how they fit in this investment environment.

ETF strategies are varied and used in all sorts of imaginative ways. This book gives access to the strategies and methods of some of the most innovative money managers in the industry. The strategies and ideas of these selected managers can be useful, whether you are looking for someone to manage your assets or a portion of your portfolio or looking for fresh ideas from high-level professionals. These outstanding managers have been featured in top shows and publications such as CNBC, Bloomberg, Barron’s, The Wall Street Journal , NBC, Larry Kudlow of CNBC’s The Call, Erin Burnett of CNBC’s Street Signs, Fox Business, TheStreet.com, Wall Street Transcript, and Research Magazine ETF Advisor Hall of Fame. Some people prefer managers with large sums under management and some prefer those with smaller amounts, so the managers are listed by amount of assets under management (AUM).

Contents:

  • The Evolution of ETFs
  • How Markets Move
  • Long-Term and Short-Term Market Timing and Investing
  • Understanding Index-Weighting Choices
  • Fundamental Indexing
  • iShares
  • Rydex|SGI
  • How Do Outstanding Money Managers Use ETFs?
Winning With ETF Strategies: Top Asset Managers Share Their Methods for Beating the Market By Max Isaacman pdf
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10 reviews for Winning With ETF Strategies: Top Asset Managers Share Their Methods for Beating the Market

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  1. Lennon Hogan (verified owner)

    This is an odd sort of book. There are 8 chapters, but the first 6 chapters cover only 50 pages (out of 200 pages). These 6 chapters are a tutorial on ETFs that is pretty good for beginners. The last 2 chapters of the book (150 pages) seems like a loosely organized set of interviews with various money managers who use ETFs in their work. There is some good information in there, but the writing style makes it very hard to learn from. This book could be improved a lot by distilling and organizing this material to make it easier to follow.

  2. Lexie Bush (verified owner)

    ETF has become increasingly popular over the past decade, for good reasons. Even for professionals, it offers access to some assets previously difficult to trade. For the general public, it is much cheaper and more convenient than conventional mutual funds, and much easier to short.

    The first half of this book introduces ETF and some general background information on market dynamics. The second half contains short descriptions of many fund managers’ ETF strategies written by themselves. Buzzwords are plenty and real information density is low, particularly in the second part. But overall, a layman should still get some useful advice out of this book. Just don’t expect to beat the market on any publicly available information or ideas. The goal here is to increase access and lower trading cost. For these realistic goals, ETF is indispensable, even for the pros.

  3. Elora Allen (verified owner)

    This book provides a good general introduction to ETFs with its emphasis on explaining the Equal-weighted and Cap weighted Indexes as well as their pros and cons. It would have been more helpful if it provides a broader coverage of the various types of ETF (which are plenty nowadays) such as the leverage and inverse ETFs which are gaining popularity in recent years.

    The remaining half of the book focuses on the interviewing of many asset managers involved with ETF investment and trading. Even though the book claims that they are top asset managers, it does not support the claims by showing their actual performance track records. I am not able to extract useful information through such interviews as it gives me an impression that they are more of an advertising campaign describing the general principles and methodologies the asset managers use. I am an active trader and investor on various ETF instruments. I am not able to find a clear set of rules nor instructions on how to implement a tradable strategy in this book. Hence using the title of “Winning with ETF Strategies” is bit over-stretching in my opinion.

  4. Ayla Melton (verified owner)

    This ETF introduction book has 8 chapters, but the last chapter takes more than half of the 230 or so pages! By the way, I received a paperback book, not hard cover. I found the first 7 chapters which cover the basics of ETFs, confusing. The author does not write well. I’m a good reader, not a speed reader but a thorough reader, and I found his writing difficult to understand. I often had to re-read the same sentence several times, something I rarely do when I read, except when I read in Spanish! The last chapter interviews a number of money managers who use ETFs, but I kept asking myself are these guys really revealing their trading strategies? Actually another question I kept asking, and which made me rather skeptical of the materials here, was are these guys even remotely successful? But, really, the problem here is, the materials simply lack focus. After reading fewer than half of the interviews, I bet you’re gonna feel a overwhelmed and not sure what strategy or strategies would really work. I think the title “winning with ETF strategies” is too much of an oversell! The author does not achieve the goal stated in the book.

  5. Tyson Huynh (verified owner)

    The only worthwhile reading here is the first few pages of the book, which gives you some background about ETFs. Apart from that, the rest of the book is practically unhelpful. I cite at least three reasons for this.

    First, this book is a terrible read. This should be a book with chapters written by the “top” asset managers themselves and someone could just have edited them. For example, Isaacman has too many statements that are like “RA says …,” “Rydex says …” and “Wagner says ….” It is actually borderline ridiculous.

    Second, almost all references and discussions of market efficiency in this book are from people that don’t have a good grasp of the concept of market efficiency (believe me, there are far too many of these people running around). Some of the “top” asset managers cited in this book claim markets are inefficient. It is only logical for them to do so because they have to justify the high fees they charge. If they say we believe in efficient markets but we are charging higher fees to replicate an index than an index fund, they will not have any business.

    Third, the selection bias resulting from including “top” asset managers makes you think, on average, you can really beat the market when in fact this cannot be the case. To see why, we know that the average return for all investors by definition is the market return. Passive investors (those that invest in index funds) will make the market return, so it must be that the average of all active investors must also be equal to the market return. Now, if the “top” active asset managers discussed in this book make, say, 10% in excess of the market return, then it must be that the rest of the active asset managers must have made 10% below the market return. So how many of these “bottom” asset managers (for a lack of a better term) follow similar strategies to the “top” managers but get terrible results?

  6. Denisse Barrett (verified owner)

    This is a good book from an ETF standpoint as well as interesting investment information. I thought chapter 2 on how markets move was important in elucidating bull markets, bear markets and sideway markets as well as sector analysis and asset allocation. I was impressed how concise and clearly this chapter is written. It enhanced my understanding of these familiar topics. I also thought the authors decision to choose the topic of equal weighted indexes vs cap weight indexes was a good idea. Again, the author is lucid in the explanation of this important topic. I think the first seven chapters to be worth the purchase of the book. The final chapter is longer than the first seven chapters combined and discusses specific firms/financial advisors/money managers. This chapter must have taken a tremendous amount of research, however there are no tables or listings to compare different asset requirements for investors, investment styles, etc. This long final chapter is compilation of a narrative of each firm with their investment approach which in many cases was difficult to discern exactly or proprietary. It gives the investor considerable information however the reader would have to read about each company and take notes and make their own tables to compare the offerings. Nonetheless, obtaining this encyclopedia of ETF asset managers is readily available in this book.
    More information about ETFs e.g. ETF web sites, as well as new ETF offerings that offer creative asset allocations would be of interest. My copy of the book had no index which it needs.

  7. Angelo Ellis (verified owner)

    This book was disappointing to me overall. With all the vast array of Exchange Traded Funds available today the author focused primarily on equal weighted ETFs and how they could be used to out perform indexing alone. I did get value out of his discussion on the benefits of equal weighting and learned something that I missed in my previous 300 books about the stock market.That to me was worth the purchase price. However I do not believe that the “Top Asset Managers” really “Shared Their Methods for Beating the Market” as the title implies. There is no records for these managers in the book and their interviews were very brief and very general in nature. Max Isaacman is no Jack Schwager that one thing is for sure. Another odd thing is that I made no highlights in the book, this is very odd, no big nuggets of stock market wisdom for me.

    This was just a very basic book on ETFs with just information not real in the trenches trading. Very bland and scholastic in my personal opinion. If this is the first book you have ever read about ETFs then you may find it helpful and informative on the basic principals and how they can be used. This is not for the more experienced traders and investors looking for an applicable edge. But to be fair I gave it 3 stars as a basic book.

  8. Kathryn Mendez (verified owner)

    I almost never give one star reviews, but this book is one of the rare exceptions. From the subtitle (Top Asset Managers Share Their Methods for Beating the Market), I expected this would be if not a Market Wizards: Interviews with Top Traders for ETF managers, at least some thought-provoking interviews with outstanding ETF asset managers.

    The book is actually something quite different. The first third of it is a basic primer on ETFs. For someone who has little knowledge of ETFs and the debate between cap-weighted indices vs equal weight and fundamentally weighted ETFs this part could be helpful. However, you can get this material all over the internet and it certainly doesn’t break any new ground.

    The final two-thirds of the book features “interviews” with “top” asset managers. I put “interviews” in quotes because these are anything but interviews. In reality they are little more than dull public relations puff pieces that could have been written by the firms themselves. In addition, the word interview implies some exchange of ideas, but here there is no question and answer, no back and forth, no real exchange of ideas at all. The sketches rehash virtually every investment cliche you’ve ever heard. I learned absolutely nothing of any interest whatsoever.

    Finally, there is no mention or discussion of how these “top” asset managers were chosen to be in the book. There are no track records, no performance figures and nothing that leads one to believe these managers stand out in any way whatsoever. They really seem like random profiles of managers that can now claim their firm has been written up in a book as a marketing gimmick for potential clients. I’m sure there are some managers using ETFs in very creative ways. If so, they aren’t in this book.

  9. Carter Best (verified owner)

    Author gives clear descriptions of the assumptions behind a number of top managers’ selection process. The author plainly states the underlying assumptions behind each selection process. One can then compare the predictive accuracy of these management assumptions based on subsequent performance data from each manager, their “batting average” so to speak..
    This is a classic experimental design. State your premise behind “what to buy” and provide your rationale. State your indicated predictions (what to buy) and act on them (buy). Then “test-out” the performance of your “buy” choices over time. Do this by tracking performance data on what you bought. This process demonstrates how “correct” your “picks” turn out to be. In this way, each manager demonstrates the “correctness” of their predictive assumptions. Buy them, watch how they perform and whomever makes the most accurate predictions “wins”. The “win” supports their earlier assumptions as to the true “drivers” of stock performance.

    Isaacman does all this for you. A field of current pickers and their reasoning is herein contained. Names are “named” and “proof of concept” given.

    Which firm did you choose for your portfolio, Max. And how did that work out for you? That’s your next book. We hope you got enough out of this effort to be motivated to follow-up. Either way, Max did a clear exposition of his subject matter.

  10. Arthur Bridges (verified owner)

    This short book on ETFs is divided in two different halves. The first one covering seven of the eight chapters in the book is focused on two themes:

    1) The assumed advantage of equal weighted or fundamental weighted indices over traditional market cap weighted indices; and

    2) The advantage of extensive market timing in different investment sectors and asset classes facilitated by the broad universe of ETFs vs a traditional buy and hold strategy.

    The second half of the book is an interesting survey of 23 different investment managers that use ETFs as their main investment vehicle to create various investment asset allocations.

    The ongoing debate regarding indices structure is interesting. The author interviews advocates on the equal weighted or fundamental weighted side. Their main argument is that this approach ensures you don’t overweight stocks that have bubbled. They state that the top 50 stocks by market cap account for 50% of the S&P 500, and they consider that excessive. Their index structures correct that. They also state their index structures have greatly outperformed their market cap weighted alternatives.

    The whole truth is not straightforward. Within the book, they often praise the Rydex S&P equally weighted index fund (RSP) as they state it has outperformed the S&P 500. However, the RSP is a completely different animal. Within the RSP the largest market cap has the same weight as the smallest one or 1/500th of the whole index. This gives the RSP a strong Mid and Small caps tilt. If you now compare the RSP performance to a Mid cap index fund (VSMAX) or Small cap one (VIMSX), RSP advantage disappears. Its performance is somewhere in between the S&P 500 and either a Small or Mid Cap index. That’s all there is to this.

    Research Affiliates has structured some successful fundamental index funds (PRF for large caps and PRFZ for small caps). Within such indices the weight of a company is based on a combination of financial metrics including dividends, earnings, revenues, and book value. The idea is the same as for equal weighted index, and that is to avoid buying too much into a stock that has bubbled. Those indices have outperformed their market cap indices counterparts. But, this is an apples and oranges comparison. This index structure within the specific cap targeted gives it a smaller cap and value tilt. Also, those indices have benefitted from a larger weighting of the financial sector in March 2009 when that sector was dirt cheap during the financial crisis. As the financial sector recovered, the PRF indices really took off. If you compare the two graphs (Fig. 5-1 and 5-2 on pg. 44 and 45) you will notice that the fundamental index chronically concentrates on lower valuation sectors such as financials and utilities and is much less invested in higher valuation sectors such as technology and health care. But, that is not always a good thing. Google P/E ratio will always be higher than PG&E. And, there are many valid reasons for that such as earnings growth. This does not mean Google is systematically overvalued relative to PG&E. At times, the opposite may be true.

    Also, early in the book there is the allusion that some ETFs are “intelligent” as companies have designed indices that would beat their respective benchmarks through a mysterious synergy of stock composition. PWC is such an “intelligent” ETF. For the first two years it did outperform the S&P 500 only to underperform it steadily since 2006. Yet, the author suggests PWC has outperformed to this day (pg 9). It has not.

    This whole debate about index structure deserves further studying. If you are interested to do so, I recommend Robert Arnott The Fundamental Index: A Better Way to Invest on the proponent side. And, on the rebuttal I suggest excellent papers: “Fundamentally Flawed Indexing” by Andre Perold and “Let’s Not All Become Fundamental Indexers Just Yet” by Paul Kaplan.

    Moving on to the section on market timing and sector rotation, the advice is poor. On page 26, the author shows what a fortune you would have generated if you had invested in the S&P 500 since 1966 and had somehow miraculously avoided in each single year the worst 5 trading days. Similarly, on page 19 the author shows a table that discloses how much the yearly return of ten different asset classes diverged during the past decade. This entails how well one could have done by investing in the asset classes that fared better in every single year. The section heading is: “The Importance of Picking the Right Sectors.” Within this same section, the author states “There are many ways to use ETFs to profit from the difference in sector performance.” To think that one has the foresight to move in and out of 10 different asset classes with perfect timing from year-to-year is as delusional as believing one can precisely avoid the 5 worst trading day of the year of the stock market.

    The second half of the book is a survey of 23 different investment managers that use ETFs to design asset allocation portfolios for their clients. These managers rely on complex proprietary asset allocation models. So, their investment method is not replicable by the retail investor. It is unclear how successful these investment managers have been. Numerous have less than $200 million under management or have just started a few years ago. Cedar Winds and Global ETF Strategies started in 2004 and Monument Wealth Management started in 2008. None of their investment record is public. So, they can make unverifiable claims regarding their excellence. One exception is Long View that created its own ETFs: Long View Global Allocation Fund (LONGX). So far it has widely underperformed a simple strategy (60% equities/40% bonds VBINX).

    Throughout the book, there is a cult of complexity promoting the merits of investing in a bunch of exotic asset classes such as currency, commodities, and small emerging market cap. Diversifying across US stocks entails investing in numerous indices (large, small, mid cap, etc…).

    Having been a student of capital markets for decades I feel this cult of complexity is over hyped. I don’t see much benefit for the retail investor in investing in all those exotic instruments. Who needs to take on currency risk or accounting risk with poor disclosure in emerging markets? Also, splitting out US indices into three separate asset classes adds no value. Instead, one is better off investing in a single large well diversified index such as the Wilshire 5000. If you had to invest in a single fund, you could do worse than simply investing in the mentioned VBINX (60%/40% equity/bonds). Also, the concept of sector rotation is a losing proposition for most investors. One’s probability of moving out of an asset class at the wrong time is probably greater than 50%.

    If you want to invest successfully and simply I recommend the excellent The Random Walk Guide To Investing . It will offer you better advice than this book.

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