I tell you where you can find them, what you will find, and my favorite features of each.
A version of this article appeared in the April 2017 issue of Morningstar ETFInvestor. Download a complimentary copy of ETFInvestor here.
The rapid expansion of computing power and the growth of the Internet have flattened the world in innumerable ways. Investors now have access to more information and more powerful tools than ever. Calculations that were once performed through hours of toil over physical spreadsheets and slide rules can now be executed in milliseconds via a web-based implement. The democratizing force that is the World Wide Web has made many of these tools available to even the smallest investors (that is, you and me) for free. Here I'll share with you a list of some of my favorite free online tools. I will tell you where you can find them, what you will find, and my favorite features of each.
Where you'll find it: portfoliovisualizer.com
What you'll find: An expansive and powerful tool kit that includes a portfolio back-test tool, a Monte Carlo simulator, a portfolio optimization feature, and more.
My favorite features: The factor analysis tool on this site is fantastic. Purists may prefer to run their own factor regressions, but the tool's speed and flexibility make it a very efficient instrument for decomposing funds' historical factor loadings. I especially like that it allows users to view historical factor loadings on a rolling three-year basis. This better illustrates the underlying volatility of funds' factor exposures over time--which is often lost viewing a static table showing these values for a specific period. I also like the ability to select different factor models (AQR's factors are also available) and to create custom regressions. If I had to pick my favorite of favorites, this would be it.
French Data Library
Where you'll find it:
What you'll find: A treasure trove of factor data, which includes the original Fama/French research portfolios and every subsequent variant imaginable. Some of the data plugs into Portfolio Visualizer, though most does not. Thus, it will be of greatest interest to the do-it-yourself factor regression crowd.
My favorite features: The data for country portfolios and developed-markets factors and returns is fantastic as it enables factor regressions for a variety of different international-equity portfolios.
Research Affiliates' New Factor Tool
Where you'll find it: interactive.researchaffiliates.com/smart-beta#!/strategies
What you'll find: Research Affiliates has developed a terrific tool for analyzing the valuations, expected returns, and expected tracking error for a variety of factor portfolios. Users can select single- and multifactor portfolios and analyze them in isolation or relative to one another.
My favorite features: The ability to toggle between gross of trading cost returns and net of trading cost returns is informative. While the latter type is the only one that matters for investors, comparing it against the former gives a sense of the slippage that results when bringing factors from the laboratory to a real-world, investable format. The most dramatic example of this comes when comparing the gross and net of trading cost returns for the momentum portfolios available in the tool.
Research Affiliates' Asset-Allocation Tool
Where you'll find it: interactive.researchaffiliates.com/asset-allocation.html#!/?currency=USD&model=ER&scale=LINEAR&terms=REAL
What you'll find: An intuitive and interactive tool that will allow you to analyze the prospective return and risk across a variety of global asset classes.
My favorite features: I like the fact that Research Affiliates decomposes expected returns into their component parts (yields, changes in valuations, and so on). I also appreciate that it complements its estimates of future returns with probability-bounded ranges. After all, forecasting future returns is an inexact science at best.
Where you'll find it: activeshare.info
What you'll find: A quick way to calculate a fund's active share. Type the ticker for an equity fund and hit enter. The result is an approximation of how much of a fund's portfolio is truly active as measured against its benchmark. Funds with higher active share can be considered more active, those with lower active share might be labeled as "index-huggers."
My favorite features: I like that the tool shows funds' active share over time. You can also calculate funds' active fees (a concept I covered in "A Different Way to Frame Fees"). However, many funds are missing data for their self-declared benchmarks, so this functionality is limited to a small subset of funds.
Alpha Architect's Visual Active Share Tool
Where you'll find it: tools.alphaarchitect.com/visual-active-share/ (Registration required)
What you'll find: This tool allows you to depict a fund's active share in a novel way. It plots data for up to five funds, drawing a bubble representing each fund's holdings on a matrix that can be modified to include various measures of stocks' valuations, profitability, and momentum. If you take it for a test drive, I'd suggest plugging in Vanguard Value ETF VTV, Guggenheim S&P 500 Pure Value ETF RPV, and Vanguard High Dividend Yield ETF VYM. These funds represent the three shades of value that Daniel Sotiroff discussed in his recent article on the topic of the different flavors of value strategies on the exchange-traded fund menu. Try plotting gross profitability/total assets on the y-axis and EV/EBITDA on the x-axis. Viewing these funds through this lens further illustrates Daniel's analysis and demonstrates the value this tool has in marrying the concept of active share with factor investing.
My favorite features: I appreciate this tool's flexibility. Specifically, I like that users can select their own preferred measures of value, profitability, and momentum.
Where you'll find it: fred.stlouisfed.org/
What you'll find: The Federal Reserve Bank of St. Louis has amassed a mountain of economic and financial data ranging from gold prices to jobless claims. You'll also find a number of useful embedded tools to help you make sense of it all.
My favorite features: The data on credit spreads is very handy. With a few clicks, you can plot a historical graph of spreads in various segments of the corporate credit market (as represented by their corresponding Bank of America Merrill Lynch Indexes). As a bonus, FRED's charting tool automatically shades recessionary periods in gray. The GEOFRED tool is also fun to play around with. It allows you to map certain economic data (gross domestic product per capita, for example) at the county, state, and national levels.
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