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Intellidex Methodology ETFs
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About Intellidex Methodology ETFs |
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Intellidex Methodology ETFs Overview and forecast
This entire category of ETFs is all handled by Powershares Capital Management.
Intellidex Methodology is a hybrid approach, "adjustable" ETFs, not strictly
passive or active. They were originally called "dynamic" ETFs, based on a
range of selection criteria including risk, growth, stock valuations and "market
momentum". At that time, (2003) there were no actively managed ETFs, and it
was a big innovation.
Intellidex Methodology ETFs have a few basic characteristics: They're jumpy in
terms of price moves, some of them trade in huge numbers, and they cover a
lot of specific sectors. They're not disguised generalists, nor based on hazy
definitions of industrial indices.
An Intellidex Methodology ETF like PowerShares Dynamic Biotech & Genome
(PBE), for example, has holdings strictly within that index. It also has a price
chart over 5 years like a rodeo ride. This ETF is an interesting study, because
that's not the passive model of the ETF, set in stone by market concepts. It's
"dynamic", all right, and with its own personal dynamics.
Intellidex Methodology ETFs come in all shapes and sizes, and it's advisable to
do all homework, prior to investing. Asset mixes, of course, have been hit by
the markets, and performance has been erratic. Weighting varies a lot, and
these ETFs shouldn't be considered a "class" in terms of specific issues with
the individual ETFs. They all hit different rocks, in effect, and generalizations
wouldn't be appropriate, if you're intending to back them with money.
Short term (6 months)
One thing the Intellidex Methodology ETFs do well, in many cases, is trade. It's
hard to ignore the irony of the "passive" ETFs emerging as good day traders,
but after all they're called Exchange Traded Funds. It's a bit like using a Rolls
Royce as a drag racer, conceptually. Even so, the Intellidex Methodology ETFs
are interesting from any trader's perspective. A lot happens, in big numbers.
Even during the crash, these ETFs weren't quiet.
In terms of investment values, however, the story is "Don't generalize",
qualified by "Don't even think about generalizing". These ETFs are too diverse
for a single rationale to work. To achieve anything like a basic index position,
you'd need a fairly large spread. In that sense, the original ETF motif is well
represented by the Intellidex Methodology ETFs.
Medium term (2 years)
That characteristic of sticking to the ETF motif is going to produce some
notable variations in performance down the track. The Intellidex Methodology
ETFs don't necessarily follow the market script, and the specialists like PBE
definitely won't. The current market is slightly misleading in relation to these
ETFs. Two years is long enough for the dust and debris to settle, and get a good
look at the Intellidex Methodology ETFs operating in a normal market.
They got hit by the same problem, lack of capital, but when the capital's
around, they run their own shows. They're not a class of identical twins,
they're quite different entities, and they will have to respond differently, even
according to their own basic concepts, because selection criteria for holdings
will vary enormously across the sectors.
The medium term could be very good for some Intellidex Methodology ETFs,
because a healthier state of capital investment will be looking for spreads, and
as investment vehicles, these ETFs are good tailoring materials.
Long term (5 years)
Much less obvious, however, over such a diverse group, is the long term
outlook. It'd be less than tea leaf reading to assume this entire group of ETFs
will settle down and raise families with choirs in the background on some
obscure principle of market behavior. The Intellidex Methodology ETFs are a
reminder of how different their indices are, and in some cases, like media and
finance, how neurotic.
The longer term is where a test of another idea related to the Intellidex
Methodology ETFs will occur. These ETFs are an excellent example of the basic
tenet of ETF-dom: "Spread the net, Spread the risk". In theory, an investor can
get a spread of a series of spreads, investing across the entire market
spectrum. Also in theory, that's a good move, because all indices rise above
their historic highs over time.
The 2008 crash interfered with the concept. The ETFs haven't yet had time to
fully test it, in the course of a normal market. The Spread the risk idea hasn't
stood up too brilliantly, but the ETFs, in most cases, are coming back up from
this very abnormal event. It's going to be interesting to see if buying ETFs at
low values, using the original holy grail of their creation, works. It might, and
that's where the research needs to be directed.
Qualifier to projections
It is still possible to say with disturbing levels of authority and credibility that if
you invest a dollar for two billion years, you'll be a billionaire. That concept is
about as useful as it looks, and investors are strongly advised to go looking for
hard facts. Passive investing and passive comas can be considered to have some
things in common, over time. The S&P itself is historically no great
recommendation for that approach. Indices rise, yes, but so does everything
else. The idea is supposed to be to make money, not tread water for decades,
and performance has to show some meaningful relationship with investor
needs.
The Intellidex Methodology ETFs are a great exercise of their investment class'
core values as a concept. The fact remains that the ideals have yet to be
proven. Pre crash, the whole ETF sector operated in "Sedate Mode",
majestically sailing through a bull market with high and rising unit prices. The
crash produced a very different dynamic. The Titanic couldn't have done much
more than their prices, after hitting than the iceberg.
It may well be that the ETFs as a class, and the Intellidex Methodology ETFs in
particular, have exposed a hidden strength in the ETF concept, however
unintentionally, during the crash. They function quite well as lower priced
units, and their interest from traders is adding potential values for investors.
Obviously, this surging capital likes those margins. The short term trades are
pretty respectable, in the second quarter of 2009, and the margins aren't to be
sneered at, either.
The moral has to be "Think, then buy". Crank up a spreadsheet, and look at
some scenarios.
In the case of the Intellidex Methodology ETFs, such a broad swathe of
investments, using a common method, could be a very useful analytical data
history of the crash.
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Last Updated on: 2010-01-14 02:03:40 |
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