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XNTK what happened to its recovery?
Old 04-18-2019, 01:51 AM   #1
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XNTK what happened to its recovery?

"XNTK is a capitalization-weighted, non-leveraged, passively managed equity ETF with the benchmark index of NYSE Technology Index."


I am looking for an explanation on why XNTK seems to be inconsistent with other similar Technology ETFs. [ I'm no expert, so maybe they aren't as similar as I assume ]



I understand the market as a whole had issues right up to Christmas Day of 2018. I get all that. But what gets my attention is that it seems XNTK dropped relatively much lower on 12/24 than the others (of this sector category). Aside from that, the subsequent recovery seems consistent, just from a much reduced balance.





So what gives? I'm just not sure what tools can give me better insight there - did XNTK rebalance at a particularly poor timing? With no "active" manager to blame, how does this passively happen?



With that hiccup, I'd find it hard for XNTK to "catch up" with any of its peers.




Thanks, just a curious observation - I'll say I kind of took it for granted that benchmarked indexes would kind of track the same as their peers. [ that said, I think XNTK may have quite a position in TSLA -- which does happen to be "down" right now, if XNTK had happened to acquire closer to its peak? ]




Below is a comparison of XNTK, versus IGM, IYW.
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File Type: jpg xntk_compare.jpg (74.9 KB, 28 views)
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Old 04-18-2019, 03:02 AM   #2
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It's non diversified. Only 35 holdings.

And check the symbol on stocktwits. There are two messages in the week before the decline. A large block of shares was dumped.
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Old 04-18-2019, 12:15 PM   #3
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Hmm, so roughly 3% each of 33 things. I'll agree it's on the lower end of diversification, but to lose 25% -- 8 out of those 33 things would have to *completely* fail back to 0. The odds aren't there.



But you're right, the $40m (500,000 @ 80$) ? Ok, ouch.
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Old 04-18-2019, 12:39 PM   #4
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IGM has 289 holdings. XNTK is a fraction of that. Whoever picked the companies, it is not going well.
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Old 04-18-2019, 12:45 PM   #5
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XNTK had a dividend distribution on 12/24. It may have included a large capital gains distribution if the fund had a lot of turnover. I don't follow the fund, nor do I own any shares, so this is just a guess.
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Old 04-18-2019, 12:49 PM   #6
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There was a dividend of over $3... not as much as the fall, but still a good amount..


I do know that Micron, Nvidia and Alibaba took a big hit around then... check the individual stocks to see what the cause was....









https://www.etf.com/MTK#fit
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Old 04-18-2019, 01:36 PM   #7
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Originally Posted by target2019 View Post
It's non diversified. Only 35 holdings. ...
This is really all you need to know, plus remember what William Bernstein told us:
“Do you think that by choosing a portfolio of only a few stocks that you hope will score big, you are maximizing your chances of becoming wealthy? Indeed you are, but you are also maximizing the chances of a retirement of cat food cuisine”
(I've posted that quotation a few times lately. Apologies to those who are getting bored. But it's a good one!)
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Old 04-18-2019, 02:04 PM   #8
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the ETF is a passive index designed to track a stated index over 10 years it has outperformed the index by .05%
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Old 04-18-2019, 03:38 PM   #9
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the ETF is a passive index designed to track a stated index over 10 years it has outperformed the index by .05%
As the OP is finding out, investing in a narrow sector "index" fund is really not a lot different than stock picking. XNTK is worse than some because it holds so few stocks, but the issue arises with any attempt to pick winning sectors. Sector performance is unpredictable.

The underlying problem is that "index investing" is conflated with "passive investing." The hucksters have exploited this confusion by inventing hundreds of narrow lists of stocks and including the word "index" in their names. A couple of my favorites are the "Sabrient Multi-Cap Insider/Analyst Quant-Weighted Index" and "FTSE Asia Pacific Qual / Vol / Yield Factor 5% Capped Index." Who can even guess what these might be? But you can bet that the associated funds have attracted naive customers who believe the buzz that "indexing investing" is the way to make money. Even the big index players are in the game, like with the "MSCI China Small Cap Growth Index." They'll create whatever they think they can sell.

To be a passive investor is basically to buy and hold everything and to trust based on history that in aggregate it will go up. Russell 3000, ACWI, etc. The only real debate is to what degree home country bias should temper the "everything" part.
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Old 04-18-2019, 04:25 PM   #10
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XNTK right now is $434m of net assets. I don't know what it had on 12/24, but it was probably in that ballpark, which means the removal of $40m was roughly 10% hit on its capital. (and this is a single bulk withdrawal, not an aggregate of everybody on that day, right?)

How that 10% was pulled could have been an important factor -- and that's where I'm a bit curious how passive management makes that decision, since I assume it's going to come down to software? The most straightforward would be: "ok, 35 stocks, so I'm selling $1.1m of each of those" -- probably not that simple (to maintain the weights). Point is, it's impartial: this seller (of $40m) probably doesn't have a problem with any particular company of the 35, as most of them were probably ok companies (most established entities, not struggling startups).



Its the individual investors prerogative on when to pull funds out. But it goes both way... We can't know where that $40m went, but suppose it just got carried over to another similar fund like IYW with $4000m of assets (so that contribution would be more diluted and less noticed). Or, put another way, let's consider the opposite: what if someone had bought $40m of XNTK that day? I probably would not have posted a message asking "why did XNTK leap above its peers?", people just don't question such blessings.


I don't really buy the diversification argument here. The same issue could happen to ITOT with over 3000 holdings: if a large whale suddenly pulled out 10% in one day, you'd probably see an impact on that fund relative to its peers. But with $19000m of assets, combined also with the large diversification, it's just less likely for an individual to achieve that much influence. Meaning, it's not just diversification in of itself... Consider: what if XNTK had 3000 holdings also, but it just happened to only have $430m to work with. A 10% single-day pull out would have gone noticed, all the same (however the software worked, it would be roughly $145K per stock instead of $1.1m -- which then that might be the key on the value of the diversification: less likely to be selling on the low of any individual stock? Or, well, it might be hard to find 3000 successful tech-sector specific funds - so not just the number of funds, but the spread of sectors). Additional aspect here is: when that 10% seller left, there apparently wasn't enough "sex appeal" of the ETF to have it quickly replaced -- capital walked out.




So that's the information I'm looking for: relative to the net assets of a fund, how do I know who the top HOLDERS of that fund are? I don't need their identities (although it would be useful insightful information, to kind of gauge their fortitude). Aside from the risk of the individual stock selections -- another risk is that any single holder could have a significant influence (and things happen - they might not have any issue with the stocks themselves, but perhaps the money is just needed elsewhere).


Interesting to me, since basically the same thing is happening in Crypto... One can argue all day on the "value" of those tokens/coins. But as we've seen recently, when a "whale" enters that market (large percentage contribution relative to the existing net assets), the price shoots up (independent of whatever merit the token has). I believe you can "explore the blockchain" and at least see which addresses have how many tokens -- is there a similar thing for ETFs? Or is this implicitly represented in things like the MorningStar Ratings? Where maybe you can't put an exact number on it, but I could see insiders having the benefit of knowing: yes, you have some large holders that could screw us over, but they're solid participants not likely to walk).
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Old 04-18-2019, 07:31 PM   #11
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Do not confuse having a huge withdrawal with stocks declining... there is no connection...



When they get the withdrawal request they just liquidate shares based on the pct. that they hold.. this has zero stock price effect as the stocks are pretty well traded and the market can absorb $40 mill easily...


Also, mgmt probably knew that it was going to be withdrawn and had started the liquidation days earlier... FWIK you cannot pull out a big amount from any MF without notice...



Back when I was a corp trustee I used to invest between $50 and $150 million for a few days every month... I had a direct line to the MM fund mgmt and would tell them how much was coming and when I needed it back... they were prepared for the big inflow and outflow...
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Old 04-18-2019, 11:41 PM   #12
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Thanks for the responses and your patience with me!!




I get that the $40m reduction shouldn't have an impact on the individual share price of any single stock within the ETF. They are all $26B or "larger" companies (from $26B Twitter to $960B Apple).


A ran through all 35 companies in this ETF (which, true, I am assuming all the same funds present now were the same as on December 2018; i.e. they haven't changed in ~5 months).

Here is the interesting part: DELL.
https://www.crn.com/slide-shows/data...u-need-to-know


I missed the news that DELL was back on the market! They went on, then off (private) I think back in 2013-ish. Over this past year, they worked on being public again without an IPO. So check this out...


12/18: BLOCK TRADE: $XNTK 513,224 shares @ $79.82 [10:32:25]
The stocktwit news about the ~500,000 share exit of XNTK was on Dec 18th. But I don't know exactly when the shares exited (maybe that same day, but not confirmed). (and buy or sell)


On 12/21, DELL went public, with a price of about $43.


On 12/21 (a Friday), XNTK open/close price was $76.91 / $74.29 .


On 12/24, the next business day, XNTK open/close price was $56.05 / $54.51 .
NOTE: It looks to me that maybe DELL wasn't tradable after 12/21 until 12/26 (it has no candle for 12/24 -- all I'm getting at, it seems XNTK acquired portions of DELL at the earliest opportunity on 12/21 ? In which case, that induces a re-balance, yes? e.g. roughly 2.42% of $500m was put into DELL, and that $$ came from somewhere within that same bucket -- but that'd be $12m, not really close to any $40m... hmm).





So, overnight, there is the 25% drop (of the ETF share-price). No individual XNTK holding dropped that much overnight (worse was maybe 7%) -- but as we said, there is no direct relationship there. I don't know exactly when the $40m was taken out, and when the DELL was acquired. Is it possible they had cash ready to add DELL ? Or is it possible the $40m was used to add/acquire DELL initial shares on the 21st? Would either of those events cause the share-price of the ETF to be drastically re-computed ?
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Old 04-19-2019, 04:09 AM   #13
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Wheels were beginning to come off XNTK wagon in July 2019. On a 2-yr yahoo chart, IGM is up 51.91%, IYW is up 45.42%, XNTK is up 4.84%.

If I held this ETF, I would be thinking: rally possible? What is the future, given it is equal-cap weighted, non diversified, hold China tech, and adds 20% cyclicals?
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Old 04-19-2019, 08:53 AM   #14
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@voidstar, you are pretty deep into the entrails of this goat. Have you considered/are you aware of "authorized participants?" You can google to get details, but the takeaway is that there are three entities at the ETF table, not just the two/fund manager and investor. Further, the authorized participant's financial interest is not aligned with the investor and, I think, only loosely aligned with the fund manager.

I am not hampered by any actual facts, but experience has taught me that bad things can happen when the participants in a deal do not have fairly well-aligned financial interests. For this reason I have always been a little shy of ETFs.
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Old 04-19-2019, 05:55 PM   #15
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If I held this ETF, I would be thinking: rally possible? What is the future, given it is equal-cap weighted, non diversified, hold China tech, and adds 20% cyclicals?

Guilty here, I have roughly 2% into XNTK (of total portfolio). So it's not the end of the world - still on track to retire at 50!


That's my dilema: get out now or wait for a rally (when that sector already just had a roughly 30% rally so far this year) - I'm down about 10% on it (which by itself isn't so bad, but again sad since that's still after that 30% recovery thus far).


@OldSchooter: And nope, I wasn't familiar with "authorized participants", but I suspected these funds had such a thing (like different set of regulations/rules for the "large" participants). So my main lessons learned here is that risk isn't just in the individual funds chosen, but also these large popup movements (which isn't captured in a metric like turnover, right?). Safety in numbers indeed - not just in total picks, but a bulkier market cap helps too.




How do I get ahold of fund managers? I'd love to hear an explanation of the overnight drop and future prospects.




"The professionals primarily responsible for the day-to-day management of the Fund are Michael Feehily, Karl Schneider and Kathleen Morgan.
Michael Feehily, CFA, is a Senior Managing Director of the Adviser and the Head of Global Equity Beta Solutions in the Americas. He worked at the Adviser from 1997 to 2006 and rejoined in 2010.
Karl Schneider, CAIA, is a Managing Director of the Adviser and Deputy Head of Global Equity Beta Solutions in the Americas. He joined the Adviser in 1997.
Kathleen Morgan, CFA, is a Vice President of the Adviser and a Senior Portfolio Manager in the Global Equity Beta Solutions Group. She joined the Adviser in 2017."



EDIT: Oooof, $50 a month to reach out to them on LinkIn? Hmmmm... Well, can't hurt to ask, right?
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Old 04-19-2019, 08:05 PM   #16
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Well, I had to look....


The drop is the dividend I had mentioned earlier...


Ex divi date was 12-24


Divi total was $16.99, regular, ST, LT



XNTK SPDR NYSE Technology ETF US78464A1025 24-Dec-2018 26-Dec-2018 28-Dec-2018 $0.162241 Quarterly $3.472629 $13.584329
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Old 04-20-2019, 06:13 PM   #17
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I see, I am slowly catching up here

For the record, the managers did respond with effectively what Texas Proud concluded. That's pretty cool, on a weekend too!





So the re-investment didn't kick in (for me) until 7 business days later (1/3). I think next time I might want a notice about such a relatively inflated distribution (everything prior to that for years had been under $1 for XNTK).
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