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Explore the consumer cyclicals sector, comprising industries such as retail, auto, construction, restaurants, and entertainment. Discover the top holdings in consumer cyclicals ETFs and recent trends in the market.
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ETFConsumer Cyclicals CHUA GUI FENG THUN JIE REN JAREN WONG JIN QIAN DARYL XI ZICHAO YOU ZHIRUN
Consumer Cyclicals • A category of stocks that rely heavily on the business cycle and economic conditions • Include many industries, such as retail, auto, construction, restaurants and entertainment. • Comprised of companies that produce goods and services that people want to buy but are not essential. • This sector tends to underperform most other sectors when the economy is weak, and vice versa. • Top holdings in consumer cyclical ETFs include Targetm Home Depot, Amazon and Walt Disney.
RECENT TRENDS • On March 11th, PGA Group, the French carmaker was buying Opel, the European operation of America’s General Motors (GM). • The White House is expected to announce plans to scrap an agreement with the auto industry that sets fuel-economy standards for the nation’s cars and trucks.
Method of Ranking • Weighted average system based on: • 1) Sharpe Ratio • 2) Information Ratio • 3) Variance Ratio • 4) Fama-French Coefficient
Sharpe Ratio Sharpe ratio is a measure for calculating risk-adjusted return.
Reasons for low Info Ratio • Tracking Error caused by: • Market capitalization weight adjustments. • Imperfect timing to adjust stocks in the ETF • Transaction costs
Fama-French model fit • Fama-French model not a good fit in general • Important to look at the significance of individual factors
Fama-French coefficients • Portfolio is predominantly/has correlation with small-cap stocks and growth stocks • SMB and HML betas are not statistically significant
Fama-French beta ranking • High beta stocks provides potentially higher returns due to greater volatility relative to the market • We will favour those with high beta during a bull market Consumer cyclicals is a category of stocks that rely heavily on the business cycle and economic conditions.
Variance Ratio • Variance ratio (q from 2 to 10) is used to test random walk and martingale hypothesis.