As Stock Picking Comes Back In, ETF Use Goes Out

March 17, 2014 Leave a comment

Mar 13, 2014

As Stock Picking Comes Back In, ETF Use Goes Out

DAN STRUMPF

Here’s the latest evidence that stock picking is back: Investors are buying and selling fewer exchange-traded funds.

As big macroeconomic headlines recede, ETFs are falling out of favor. ETF volumes have dipped this year to about 16.5% of total equity volumes, down from 16.7% in 2013, according to analysts at Credit SuisseCSGN.VX -1.59% Trading Strategy. The data suggest that investors are increasingly favoring trades in individual stocks.

“ETF usage typically increases when macro issues dominate and correlation increases since ETFs are a convenient way to move money quickly and shift beta exposures efficiently,” the analysts write.

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In 2011, when the euro-zone crisis pushed markets to and fro, ETFs made up 18.2% of total volumes. The figure hit a peak of nearly 20% in 2009, just after the financial crisis.

To be sure, ETF use did spike a few days this year when macro headlines returned to the fore. When Russia invaded Ukraine on March 3, ETF use jumped to more than 21%. When a weak manufacturing report knocked stocks on Feb. 3, the figure shot to nearly 25%.

An article in this week’s Wall Street Journal noted that such macro headlines have grown more scarce this year. As a result, correlations–the tendency of individual stocks to trade in the same direction—have declined and more investors are shifting toward active management.

Credit Suisse also highlighted the recent drop in correlations. One metric, one-month “realized” correlation within the S&P 500, is down to 25%, according to Credit Suisse.

 

Filed under Macro Trends

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Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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