Friday, November 20, 2009

New Seasonality ETF Launched

Don Vialoux and Brooke Thackray are the two "seasonality" analysts. They appear regularly on BNN. They look at patterns and trends during the year for several types of stocks. I receive Mr. Thackray's newsletter regularly and it is quite entertaining. Now they have joined forces and will be managing a new seasonality ETF, run by AlphaPro, another Jovian company (the same that issues the much maligned leveraged ETFs in Canada which lose most of their money for their investors). At least this one is not leveraged, but there are some unpleasant surprises in them.

The ETF will start trading Tuesday, symbol HAC in Toronto, and will invest in markets or sectors that typically rally in different parts of the year. The managers will no follow a buy-and-hold strategy. This part is great.

Don Vialoux who runs, and Brooke Thackray, is author of several books (Thackray's 2010 Investor's Guide), will provide technical analysis for the seasonal patterns.

Says the Globe and Mail: "Mr. Vialoux has said that average optimal date to enter North American equity markets is at the opening on Oct. 28, and the optimal time to leave is at the close on May 5. But that should be fine tuned each year with technical analysis, he contends.
On his Web site, he said the optimal entry point this year was on Nov. 5. Sectors that are attractive at this time of year include information technology, consumer discretion, industrials (sub sector transportation) and basic materials,"

The prospectus say that HAC will try to make money in all market cycles by tactically investing in stocks, bonds, commodities and currencies during periods that have historically demonstrated seasonal trends and/or will sit in significant amounts of cash. It will also do limited short-selling and unfurtunately will invest in ETFs that include the leveraged and inverse ETFs managed by affiliated company BetaPro Management Inc. This is very bad as these ETFs cannot be held for more than one day or investors in on average lose money. On top of this they generate commissions for BetaPro?? Read release.

Here is the worst part. The ETF has a management fee of 0.75%. However, AlphaPro will also get a performance fee that will be equal to 20% of the amount by which the performance exceeds the "high water mark" and outperforms the one year Government of Canada Treasury Bill rate (which is silly as it is near zero).

A nice idea that somehow became what some will call 'trash'. Investors might be better off investing in Jovian itself as they will make even more money from mom & pop investors.

AlphaPro also features another couple of actively managed ETFs. One of them tries to improve on the TSX60 index (which is tracked by the iShares XIU). Please see the comparison chart this year:

XIU: +25.37%

HAX: 11.15%

What else can be said... It is amazing that people buy these things. For a more detailed look at active versus passive, please see our next post).

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