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IYC Evaluation and Reasoning


Article posted on 24th August, 2015
 
iShares Consumer Services ETF
 
IYC:  Purchase - 24th August, 2015 - bought at $107.00 for total stake of ~15% of portfolio
 
IYC:  Sale - 24th August, 2015 - Sold at $138.34 for a profit of little more than 29%
 
Update from Sept 5th, 2015:
Barron's article that describes scenario: http://www.barrons.com/articles/the-great-etf-debacle-explained-1441434195
So finally I'm seeing some news on this.

Reasoning Aug 24th, 2015:
 
This purchase and sale was a bright spot in an otherwise very rough day (So fair and foul a day).
 
I was extremely lucky to have noticed that IYC dropped markedly today when I logged on to check on the carnage.  Being already familiar with the underlying stock holdings, I knew that the 18% drop I first saw was not rational.  By the time I placed my limit order to purchase, it had dropped even more (down ~26%).  Here is why the made no sense.  The top 10 holding in this ETF are Currently:
 
Amazon.com, Inc.    AMZN        6.57
Walt Disney Company (The) Commo    DIS    6.01
Comcast Corporation    CMCSA        5.04
Home Depot, Inc. (The) Common S    HD    4.88
CVS Health Corporation Common S    CVS    4.07
Wal-Mart Stores, Inc. Common St    WMT    3.65
McDonald's Corporation Common S    MCD    3.07
Starbucks Corporation    SBUX        2.79
Walgreens Boots Alliance Inc    WBA    2.71
Time Warner Inc. New Common Sto    TWX    2.33
 
So the top 10 holdings make up ~40% of the ETF holdings, with the rest of the holdings composing 2% or less each.  A 26% drop in the ETF would need an average of 26% drop across all of it's holding to be justified.  A quick check on the top 10 made it clear that this was not the case.  Even if it was the case that the underlying stocks had dropped an average of 26%, that to me seemed like an obvious oversold position.  I bought IYC on a limit order with the expectation that it would come back at least some over the next few days.  My trade was executed at 9:44 AM for a price of $107.00.  After lunch I checked on IYC and was shocked to see that it recovered far sooner than expected and was above $138.00.  At this point I had no reaason to hold the ETF any more since my only intention was to capture the recovery from the oversold position.  I executed a limit order sale at 1:04 PM for $138.34.  A very quick 29% gain.   I rarely trade stocks this quickly or spot a situation like this so easily but everyone get's lucky sometimes.  If I had logged on and checked 15 minutes later, I would not have been able to take advantage of this.
 
I believe what happened is that, in balancing out their portfolios on a very bad day, traders were carelessly placing market orders and the ETF price fell well below the value of it's holdings.  Later in the day I took a look at some other ETFs and they exhibited similar bahavior.