Key period takeaways: 1) bounded thematic PBW/PZD composite performance YTD 121120 (+162.4%/+40.2%) is ranged by constituent dispersion of +1,364.5% and -54.3%, 2) tech benchmark QQQ performance (+42.7%) is bested by niche proxies TAN (+172.1%), LIT (+98.7%), FAN (+44.3%) and CARZ (+46.5%), and 3) with the exception of MTUM (+25.8%), SPY (+15.5%) outperformed Smart Beta (PRF, PRFZ, EUSA) and factor-based (LRGF, SMLF, VLUE, QUAL, SIZE, USMV) strategies though trend is reversed on a recent one- and three-month basis (absent USMV).
Alternative Energy Subindustry Benchmark ETFs PBW/PZD are publicly-sourced to create a Renewables/Diversified Industrials/Technology sector-themed overlay based on component member business segment operations (10 segments, 55 classifications, 76 single and multi-listed component members). Proprietary research suggests empirical past-positive forward looking variance inversions of portfolio position weights versus market capitalization indicate directional valuations in select companies.
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To advance analysis, needed is a reconciliation of specific business segment operations among representative component members apart from the general sector designations presented in standard fund reporting.
At Venn’s intersection, sets and subsets of competing interests endure. Proprietary research suggests its dynamic principle in relation to business segment operations is three-fold: 1) multinational and Large-cap companies function as benchmark sector/industry/subindustry proxies based on scale and business segment operations, 2) Small- and Mid-cap companies compete as peers and are delineated by business segment operations and 3) among subsets of 1) and 2) are vendors provisioning multiple economic sectors, asset classes and geographies. Successful trading strategies (systematic, momentum, thematic) isolate Value in Growth by not overlooking the prospective Alpha drivers directly associated with ecosystem and supply chain verticals or profiles of Small- and Mid-cap companies functioning as competitive peers and, hence, acquisition candidates.
From a portfolio management perspective, designing strategies based on business segment operations lends the advantage of iterative index applications by exploiting the inefficiencies in third party data nomenclature assignments which inevitability skew peer group analytics and valuation. While means and methods vary of course, a latticed framework—gleaned from competitive market information, built by segments/classifications, interpolated for integrity—exhibits the proportionality revealed by business segment operation considerations and distinguishes differentiated growth rates beyond simple revenue line aggregation. Additionally, a developed thesis for security selection in the Energy complex incorporates: 1) a barbell to CAPE as an extrapolation, 2) a barbell of Cleantech to Diversified Industrials as a foundation and 3) a barbell of Value to Growth implicit in corporate anatomy.
Common portfolio position weight allocations (0.5% < x < 4.0%) may be aligned consistent with long/short peak-to-trough cyclical/counter-cyclical exposures and emerging technologies among individual and multi-listed component members. Importantly, often discarded negative PE companies are included to capture points of inflection for cash flow growth and forward earnings momentum. In the end, a structure of analysis in the Energy complex is borne from the examination of business segment operations within diverse companies across economic sectors and asset classes plus, on a standalone basis, competitive peers—by definition, Alpha is singular.