Beating the BOLD1 Index - It Is Possible

There are 137 equity ETFs listed on the London Exchange that have traded for five years or more (with USD tickers). Over that period, the ByteTree BOLD Index (BOLD1) returned 150.3%, and not a single one of those ETFs has kept up.

Over the past three years, the list has grown to 184 ETFs, and BOLD1 has returned 68.2% over the period. I am pleased to tell you there has been a winner that managed to beat BOLD1 with an impressive 83.8% return. Our congratulations to the L&G Battery Value-Chain ETF (BATT), which holds an interesting bunch of stocks.

BATT has done well courtesy of holding the likes of Tesla (TSLA +1,502%), followed by BYD (1211 HK + 527%), Solaredge (SEDG US +376%) and Pilbara Minerals (PLS AU +278%). BATT was held back by GSS Tech (GWH US -63%), Renault (RNO FP -54%) and Largo (LGO CN -47%). It’s an eclectic mix of old car companies and US tech combined with mineral extraction; a diversified strategy from a macro/factor perspective, even if coincidental.

It was all going well for BATT until 2022 when basically everything slumped. BATT has once again been lagging BOLD1.

BATT versus BOLD1

The chart shows BATT relative to BOLD1 (black line) with a 200- and 30-day moving average. BATT is below the 200-day, which is negatively sloping. It is also below the 30-day, which is positively sloping. Out of a possible 4 points, today BATT gets one point. It would have scored 4 in late 2020 when price was ahead of the moving averages, both positively sloping at the time. 4 strong, 0 weak. This points system is not dissimilar to the ByteTrend scoring system.

I ran this data across the current 266 ETFs to see where the market is today. There is currently just one ETF with a score of 4 (strong outperform) versus the BOLD1 Index. That is WisdomTree’s Japan USD Hedged ETF. It owns the Japanese stockmarket with an additional bet that the yen will fall versus the US dollar. On this occasion, because the yen has collapsed, and the bet has paid off. EWJ is up 2% this year in USD terms.

Hedging a Falling Yen Sometimes Comes Off

Next, there are 29 ETFs that score 3 vs BOLD1, which have enjoyed a modest degree of outperformance. 29 of 266 means 11% of the ETF universe has beaten BOLD1 in recent history, yet that same gang represents just 4% of assets. I will share the list at the end.

Looking at the 151 underperforming ETFs (vs BOLD1), they make up 79% of all assets, which is remarkable. It is telling you that the money is sitting in the wrong vehicles and investors are underperforming.

BOLD1 makes an interesting comparison because it’s the closest thing we have to neutrality within an inflationary environment. By combining bitcoin and gold on a risk-weighted basis, you have a 20/80 mix (approx.) in favour of gold, which is independent of the financial system.

Bond prices have been heavily influenced by central banks in recent years, so much so that we haven’t had a free market for years. Since the bond market defines the “risk-free” rate, all asset prices, from equities to property and infrastructure, are priced off bonds.

Without a free market, we have no idea what the price of money ought to be. We know it was too low because stimulus was too high, but whatever the new neutral rates might be, remains a mystery.

If we don’t know the price of money, then we don’t know the correct price for assets.

That is why this comparison to BOLD1 is a useful exercise. Both bitcoin and gold are liquid alternative assets, that are insulated from the financial system. They neither get printed nor bailed out. They trade freely and are left to their own devices.

Whatever criticisms about liquid alternative assets some may have, at least their pricing is independent of the financial system, and therefore this comparison offers an interesting and alternative perspective.

In the past, I would have carried out this same exercise with just gold. Today, there is a liquid alternative asset, bitcoin, which I believe is progress. The resulting risk-weighted blend enables BOLD1 to be used during both bull and bear markets.

What is remarkable is how well BOLD1 ranks despite a recent crash in the price of bitcoin. Now that’s behind us, it’s only going to get harder for equity ETFs to keep up from here.

ETF Scores versus BOLD1 Index

The groups by score are ranked by AUM.

Score 4 - Strong outperformance versus BOLD1

Lucky.

DXJ WISDOMTREE JAPAN USD HEDGED

Score 3 - Modest outperformance versus BOLD1

Healthcare and quality dividends worth consideration. The gold miners made it too! Not so sure about China.

Score 2 - Neutral versus BOLD1

Much of the energy landscape has drifted back down to neutral. Once again, the message is dividends and min vol strategies, along with healthcare, are not such a bad place to hide.

Score 1 - Modest underperformance versus BOLD1

Despite being the 3-year winner, BATT now lives here.

The World Value Factor is starting to wane. Wowsers, had better check. It turns out the moving averages are both downward sloping. Peak value already?? This bear is going to be tough.

Value tired!

Score 0 - Strong underperformance versus BOLD1

If the S&P is in group 0, that’ll take the assets. Again, US value is down here along with Robots, buybacks, Turkey and Cannabis.