Volatility has been the word of the month, and though last week saw much of it, the market ended overall much further to the downside. 

    For the week, only 5 of 26 categories ended up, with only short and convertible funds ending the week up more than 1%.  Of the 21 categories that were down, 17 were down more than 1%, 15 were down more than 2%, 9 were down more than 3%, and 4 were down more than 5%. 

    For the month now, only short funds are up, with the remaining funds down on average 8.5%. 

    As far as the week's correlations go, other than short funds, only commodity, municipal, and infrastructure funds had S&P correlations below 50%.

    Dollar-Weighted Category Return

    This week brought further downside and volatility to the market, with only 8 of 26 categories positive and an average week category return of -1%. 

    Of those 8 categories that ended the week up, only utilities, Europe, commodities, and short funds were up over 1%. 

    Of the 18 categories that ended the week down, 15 were down over -1%, 8 were down over -2%, and 3 were down over -3%.  The worst performers were infrastructure, transports, energy, and China.

    At this point, only the currency, commodity, and short categories are currently up over the past trading month. 

    Year-to-date, large- and mid-cap categories have only marginally positive adjusted close returns, with small-caps already sliding beneath par. 

Dollar-Weighted Category Return

    On the week, 21 of 26 categories ended up.  Of these 21 categories, 17 ended up at least 1%, with the largest gains seen in Russia, Latin America, and China.  Of those 5 categories that were in the red, only 2 were down more than 0.3% - short funds, on the wrong end of the market this week, and real estate funds, still plagued by the on-going subprime and rate worries.

    It's interesting as well to note that the categories with the highest correlation to the S&P after retail were Russia and MSCI.  Those with the lowest correlations after short funds were currency, convertible, and call-write funds, as is typically the case.

Dollar-Weighted Category Return

Dollar-Weighted Category Performance

    On the week's dollar-weighted performance, only 2 of 26 categories ended the week black - short funds and China funds, returning a respective 2.87% and 1%.  Another 3 categories ended the week only marginally red, falling at most 0.36% percent - currency funds, Japan funds, and broad Asia funds.

    The remaining 21 categories were down at least 1% (call/write) and, at worst, nearly 7% (infrastructure).  Of these categories, the average return was nearly 3% down.

    With the week at last done, there still does not seem to be a single non-psychological motivator for the broad market losses.  Both gold and oil ended the week down, but stock and bond market returns do not seem to match what we would expect in such a week. 

    One possibility I offer as a suggestion is that foreign investors, having enjoyed the past two months, view the current dollar strength as a local maximum.  The US Dollar Index, having dropped throughout the market rally, is believed by most to continue to decline in the medium-term.  Given this, then regardless of their investment type, the current dollar high would provide them the best return after conversion to their home currency, thus explaining an otherwise unexplainable lack of historical correlation between asset classes.

Dollar-Weighted Category Return

    21 of 26 categories ended Tuesday down, with the average category trading down -0.40% with an average dollar flow out of 3 million.  The worst outflow was in small caps with 33 million red, followed by real estate, utilities, and large caps.  The only two categories that saw non-negligible dollar inflows were short funds and China, despite the volatilitly that Chinese markets have experienced this week. 

    It's interesting to note which categories have had the lowest correlations to the SPY in the last week.  Those with negative correlations are convertible funds, China funds, and currency funds.  Low but positive categories include Japan funds, commodities and resources funds, call-write funds, and broad Asia funds.  Asian markets have remained strong despite high volatility and dramatic swings, ignoring changes in the bond and currency markets that could point to troubling costs and inflation in the coming cycle.

NB: The original market cap values were very wrong, thanks to order of magnitude errors in E*Trade's data.  Thanks to Steven Towns for the corrections.

    Though the number of competing ETFs in the market has been increasing dramatically, broadly profitable market conditions have kept adverse conditions from weeding many out.  Though the crude contango complaints that have surfaced in the past few months may represent a thread that will be common in the coming years, most sectors do not seem to currently face this level of criticism.

    In analyzing CEF and ETF options for investment in Asia, Japan, and China, there are a number of trends I spot.

1. Japan funds have on average more than twice the market cap of either China or Asia funds.
2. Asia funds have on average more than twice the dividend yield of either China or Japan funds.
3. China funds have the highest average expense ratios, while Asia funds have the lowest.

    All in all, I have a relatively hard time rationalizing specific country exposure when the broad Asia funds seem to have a number of advantages in management costs and obvious increase in geographic diversification.

    The full tables I used are below.

Dollar-Weighted ETF/CEF Category Return

    A combination of surprisingly tame inflation data, strong payroll numbers, and falling energy prices resulted in a week of broad market gains.  Over the week, the largest gainers were real estate, Latin America, and emerging market funds by far.  Small caps, emerging markets, commodities, and retail funds ended the week with strong inflows as well.  A relatively quiet week and falling energy prices seems to have tempted large numbers of investors back into these higher-return assets, especially given their possibly oversold prices after last week's volatility.

    To the downside on the week were only short funds; no other category ended red or even unchanged.  The worst performing categories, though still positive, were healthcare, utilities, currency, convertible, dividend, and large caps.  With the VIX indicating overall market volatility fell 7% and the RVX indicating that small cap volatility fell 2%, it's not surprising that the more conservative asset classes saw a slow weak.  It is interesting to note, however, that healthcare was actually more negatively correlated on the week than short funds.  This is perhaps the result of the difference in performance between the S&P and the other indexes on which there are short ETFs, but such a strongly negative correlation is a trend that warrants further attention.

Dollar-Weighted ETF/CEF Category Return