Custom ETF analysis
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Thread: Custom ETF analysis

  1. #1
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    Custom ETF analysis

    Hello everyone,

    This might have been discussed from a different angle in the past here but I thought I might share with you something I found useful recently.

    I've been running my own basket of REITs (call it a custom ETF) for a couple of months now and I've been wondering how it compares to the benchmark ETF - ZRE, in my case. In particular I wanted to see how it correlates to the benchmark and what the deviation looks like over time. I found this great tool for running technical analysis (I am not affiliated to it in any way) called tradingview.com. It allowed me to very easily compare my custom basket against ZRE over time and calculate correlation.

    Here is a screenshot if you're curious: https://www.tradingview.com/x/C1dT2qr7/

    My ETF is an equal-weight list of the following 6 REITs: REI.UN+CAR.UN+AX.UN+AAR.UN+NWH.UN+SOT.UN

    The reason why I decided to unroll ZRE was due to the high MER and relatively small number (19) of holdings. My theory was that I might be able to replicate its performance with a sample of some sort and save on the high MER cost of 0.61%. If I am successful and manage to show similar capital appreciation/depreciation as ZRE then the above basket of 6 REITs yields today 6.56% vs 5.24% from ZRE.

    Anyway, I thought this might be interesting to some.

    Cheers,
    JC


  2. #2
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    Interesting John, thanks for sharing.
    I may have missed it somewhere on the graph, but is the blue line your portfolio and ZRE the red line, or the other way around?
    (Sorry, but graphs/plots that don't clearly identify their scales/units/components drive me nuts)

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    Quote Originally Posted by OnlyMyOpinion View Post
    Interesting John, thanks for sharing.
    I may have missed it somewhere on the graph, but is the blue line your portfolio and ZRE the red line, or the other way around?
    (Sorry, but graphs/plots that don't clearly identify their scales/units/components drive me nuts)
    You're right, the colours don't show up in the legend. Silly indeed. The bold blue line is my basket of 6 REITs and the red one is ZRE. The secondary chart under, in the red area, is the correlation coefficient -- showing high values close to 1, except for a short period around 2014, which is interesting to dig into. My interpretation is -- I am pretty close to ZRE, if not beating it some of the time.

    I know some other people in the forum compile their own baskets of stocks or even bonds (james4beach). So I'd be curious to see their charts compared some benchmark. Also this tool provides a ton of technical analysis functions which others more familiar than myself could probably leverage more. It also seems to be programmable, i.e. you can write your own functions.

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  5. #4
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    Is the calculation for your blue series literally (REI.UN+CAR.UN+AX.UN+AAR.UN+NWH.UN+SOT.UN)/6? These REITs do not all trade in the same price range, so that would be a price-weighted index, which would be a little weird. Equal-weighted should involve a weighting factor on each one.

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    Indeed it is (REI.UN+CAR.UN+AX.UN+AAR.UN+NWH.UN+SOT.UN)/6 which will give you a price average just like you say. It's a totally useless number in and of itself.

    What matters though is that when put together with the ZRE on the same chart you look at relative change in price, not absolute value. That is comparison of percentages. I tried also using REI.UN+CAR.UN+AX.UN+AAR.UN+NWH.UN+SOT.UN (just the sum, not average) and it produces the same graph.

    Having said all that -- I might be wrong anyway so feel free to correct me if you still think I am messing something up. You could also give it a shot in the tool.

    Cheers,
    JC

  7. #6
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    Quote Originally Posted by gardner View Post
    Is the calculation for your blue series literally (REI.UN+CAR.UN+AX.UN+AAR.UN+NWH.UN+SOT.UN)/6? These REITs do not all trade in the same price range, so that would be a price-weighted index, which would be a little weird. Equal-weighted should involve a weighting factor on each one.
    I agree price weighting is pretty weird, but then again, that's what the DOW does and it's one of the most widely utilized indexes out there.

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    Quote Originally Posted by Nerd Investor View Post
    I agree price weighting is pretty weird, but then again, that's what the DOW does and it's one of the most widely utilized indexes out there.
    I don't think it's price weighting in this case though. It's percentage weighting (equally). This is because the tool converts the absolute price into a percent difference from a starting point whenever there is a second security (ZRE) compared there.


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