The Claymore Canadian Fundamental Index ( CRQ) is supposed to perform better during bear markets than its counterpart, the iShares Canadian Large Cap 60 Index ( XIU). It uses fundamental weights and gives more emphasis to value stocks whereas the iShares ETF uses market-cap weights and gives more weight to growth stocks (which tend to collapse more in bear markets).
Well, that hypothesis got a good testing with the current bear market. Did the Claymore ETF live up to the billing? As it turns out, both ETFs ended up showing the same drop of about -22% over the two-year period ending July 6 see the Yahoo chart below.
For the first 14 months toSeptember of 2008, the iShares ETF was ahead. But then it collapsed big time in October and the two ETFs were neck and neck. As the bear market deepened, the Claymore began falling behind again contrary to what would be expected it would seem. Then, during the vigorous rally from March, 2009 onward, it rose faster and pulled up even with the iShares again something not aligned with expectations.
It would seem the explanation for these movements is that fundamental weighting gives more emphasis to the financial sector. So the extreme volatility caused by the crisis of confidence in this sector may be what kept the Claymore from performing according to the hypothesis. Perhaps if the bear market was more like past bear markets, i.e. without a grave financial crisis, the Claymore would have done better.
A comparison of the Claymore and iShares ETFs tracking U.S. and global stock markets resulted in a split decision. Claymore came out ahead in the global space and iShares in the U.S.
One caveat: these comparisons were done on a price basis only. Ideally, distributions should be included and the comparisons done on total-return basis. At the moment, for example, the estimated yield on the iShares comes out somewhat ahead, at 3.1% vs. 2.6% for the Claymore. If this spread persisted over the two years, then the iShares would be slightly ahead at the end of the period.
Another caveat: different time periods can give different results. For example, if we just look at the year ending July 6, 2009, CRQ was the winner, declining bout -15% compared to about -25% for XIU. So, within that time frame the thesis did hold up.