In this article, let�s take a look at iShares MSCI Glbl Metals & Mining Prdcrs (PICK). An ETF is a special type of fund that invests in a portfolio of stocks or bonds. The aim is to mimic the performance of a specified index. As well as the shares, they are traded in the secondary market at any time (market hours) and investors can sell short. The advantages of this investment vehicle are that they provide an efficient method of diversification because investors gain exposure to an index or a particular sector. Secondly, investors know the composition of the fund at all times. Moreover, as they are a passive managed fund, they have good operating expense ratios.
The PICK ETF
This ETF seeks to track the results in price and yield, net of expenses, of the MSCI ACWI Select Metals & Mining Producers Ex Gold & Silver Investable Market Index.
The top 10 holding represent about 51% of total portfolio, and the list includes companies such as: BHP Biliton Ltd (BHP), Rio Tinto PLC (RIO), Glencore (GLEN.L), BHP Biliton PLC (BLT), Anglo American (AAL), Nippon Steel & Sumitomo (5401), Rio Tinto Ltd (RIO), Freeport-McMoRan (FCX), Alcoa (AA) and Nucor (NUE). As the top 10 holdings dominate half of the returns, we can conclude that the company-specific risk is high.
In terms of industry allocation, the fund has the following structure: the top sub-industry weightings currently belong to the Mining (67.72%), Iron/Steel (29.58%) and Metal Fabricate/Hardware (1.66%).
As of March 25, the geographic focus is Australia (21.19%), U.K. (15.4%), U.S. (13.97%), Japan (9.71%), Switzerland (7.53%), Canada (4.36%), Brazil (3.82%), South Korea (3.81%), Germany (2.24%) and Russia (2.11%). Also, it invests practically all in stocks (99.98%) while cash and others have an insignificant participation.
Value at Risk
Value at risk (VaR) is a probabilistic method of measuring the potential loss in portfolio value over a given time period and for a given distribution of historical returns. VaR is the dollar or percentage loss in portfolio value that will be equaled or exceeded only X percent of the time.
So there is an X probability that the loss in portfolio value will be equal to or greater than the VaR measure.
The analyst must select the X percent probability and the time period over which VaR will be measured. Generally, it is used a one-day period.
Although there are various methods, now we are going to concentrate on the Monte Carlo Simulation. This method generates hundreds, thousands or even millions of possible outcomes from the distributions of inputs specified by the user.