Today I want to talk about how important it is to know what’s inside the index funds you own. In many cases they can be misleading. Something like the Dollar Index, for example, which is basically 60% Euro, is not exactly the best barometer of the “U.S. Dollar”. The Consumer Discretionary Index is 23% Amazon. Stocks like Google and Facebook aren’t even in the Technology Index! Combined, $GOOG & $FB actually make up around 40% of the Communications Index.
It’s important to know what you own, or what you’re analyzing for that matter. When you talk about the S&P500, this is basically they greatest momentum strategy of all time. It buys more of the biggest and best performing stocks and kicks out the worst ones, replacing them with better performers. For me, this is the best large-cap momentum strategy ever created.
What about the Value Line Indexes that show you more of the median performance of stocks in the market? Meanwhile, the Russell3000 represents approximately 98% of all investable assets in the U.S. equities market. Within those 3000 stocks, you have 2000 small-caps, where Financials have twice the weighting as they do in the large-cap indexes. And speaking of “Financials”, Berkshire Hathaway is the largest component of the S&P Financials Index, a company maybe more well-known for it’s railroad and industrial exposure.
So my point is, that it’s just as important to understand what’s inside the assets we’re analyzing, as it is to do the actual analysis itself.
I often find my best ideas simply by diving into the components of an index or ETF whose performance gets my attention, for whatever the reason. In some environments we may be looking for strength, in others we might be looking for weakness. Every environment is different and therefore different indexes get my attention for various reasons.
My favorite tool to dive into the components of any index out there is Koyfin. Currently, it’s still a free data platform that I encourage you to check out, if you haven’t already. We’re private investors in Koyfin, full disclosure. But in the parlance of the 1980s Hair Club, I’m also a client!
Here’s what I like do. When an index ETF gets my attention, I go to Koyfin.com and enter the ticker of the fund. Then I scroll down to “Holdings Snapshot”:
When you click on the Holdings button, you’ll get a bunch of stuff, but the list of components will be found at the lower left of the dashboard:
You can even download the holdings into a spreadsheet so you can sort them out any way you want. Here’s what that looks like, and here’s what the spreadsheet looks like after you download it
This process is something that takes me only a few seconds to do and gives me a great starting point of charts to analyze. This is how we find out what’s driving the strength (or weakness) in a given space. You’d be surprised just how great this is for idea generation.
Try it out for yourself.
Remember, you want to know what it is you own or what you’re analyzing. But it’s also a great way to find ideas using this top/down approach.
Throughout my career, I used other older platforms for this sort of stuff, but they’re all mostly outdated and never evolved when they had a chance. Koyfin is doing a fantastic job of filling that role. They are a must-use tool for anyone interested in the market.
If you’d like to see how we use Koyfin and other platforms to do our Technical Analysis, I encourage you to enroll in our new Charting School. We’re getting amazing feedback so far! I lay it all out there so you can easily do the same analysis we do here at Allstarcharts.
Try out our new Charting School and let me know what you think!