Following on from a couple of past questions about whether QAV was useful for analysing ETF’s, I have undertaken some analysis and have decided to exclude ETF’s, LIC’s and Managed Funds from the QAV process.
I do this for 2 reasons. Firstly, the operating cashflow line for these listed entities (particularly) ETF’s is often cancelled out by the financing cashflow line in the cashflow statement. There are some cases where Geared ETF’s and international ETF’s have small net cash movements due to currency and gearing, but in the main, there is zero net cashflow.
See this example from GGUS:
LIC’s can be a little more convoluted as they can raise new money from clients as well as run their profits/losses, dividends and gearing through their cash flow statement, but they appear to be dominated by receipts from customers and payment to suppliers.
The second reason for removing listed funds from the QAV list is that in a lot of cases they are only producing index like returns. I went back to a Top Scorers list from last year and checked on the return if the list was bought and held. Overall the total list produced a return of 30%, but the listed ETF’s and Funds returned only 9%. Looking at the ETF’s and funds on the Top Scorer’s list at that time, they are a way of investing in various overseas countries. EG HJPN, GGUS, ESTX, etc. There were some funds that were actively managed, eg MFF, however, they did not perform well. Which begs the questions, if QAV performs at twice market, why invest in another active manager’s fund that has such a high bar to beat?
I will therefore make a change to the QAV filter in Stock Doctor. The “Include Unclassified” button in the GICS classification section of the filter will be unclicked to remove ETF’s. This will not exlude all listed funds from our downloads, as some are classified as Diversified Financials and these will have to be filtered out manually until I find a better way of catching them. MFF is in the Diversified Financials category, which we want to exclude, but ECX is also in the Diversified Financials category, so that GICS category must remain in our filter.
Here is a screen shot showing where to unclick:
Don’t forget to save the filter after unclicking this box.
We can talk about this in our next show.