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10 comments:
My models for this week:
Intl/U.S. allocation of long positions
MSCI EAFE Index 30%
MCCI Emerging Markets Index 40%
Russell 3000 Index - U.S. 30%
Timing Model Score = 1.5
70% long 30% cash
Top Ranked U.S. Sectors
U.S. Real Estate 4.5
U.S. Telecommunications 4.5
Small Cap Value 4.0
U.S. Leisure Goods 3.0
U.S. Pharmaceuticals 3.0
U.S. Health Care 2.5
Top Ranked Internationals
MSCI Spain Index Fund 3
MSCI Mexico Index Fund 3
MSCI Singapore Index Fund 3
MSCI Sweden Index Fund 3
FTSE/Xinhua China 25 Index Fund 3
S&P Latin America 40 Index Fund 3
MSCI Brazil Index Fund 3
MSCI EMU Index Fund 2
MSCI Malaysia Index Fund 2
Although my timing model didn't change this week I'm reducing equity exposure to 70%. I debated doing this last week but now feel the upside potential for this market is increasingly limited. Jason Goefert's Smart Money Confidence Index is now at 37%. That index has been below 40% only 4 times during the past 4 years (3 times this year).
I'm also begining to think I'm over-exposed to emerging markets. Any downturn in global equities is likely to be more severe in emerging mrks. That said, I won't override what my indicators are saying.
The current issue (11/27/06) of Forbes has a nice piece by contributor Laszlo Birinyi. It is entitled MUTUAL FUNDS STINK.
He makes several good points.
Love the dogs. I am also interested in knowing which blogs you read everday. While i know you rarely mention specific stocks, as a punter I will: PX. Here is my take: it has a wide moat, large foreign exposure, and its products are a must for numerous industries, and it has few competitors. It also locks in long term indexed contracts which smoothes out income. These factors induced me to take a position. I generally buy very few new stocks. i really have to be seduced and they have to make a product i understand.
roger where do zero coupon bonds stand in your investing universe? it this a good time to buy the 30 year zero coupon bond? curious george
Thanks TomK and for the extra note on emerging markets.
Mutual funds stink? Nice Lazlo and thanks T.
What do I read? You can click here for a dated but mostly accurate list.
Zero coupon bonds? Great concept but a bit of a nuisance in taxable accounts. I'll write more about his in a post Sunday or Monday.
Timing model update: Jason Goefert at Sentimentrader.com just updated his Advisor/Investor Sentiment Index. This model has just fallen from OB territory which I interpret as a reversal. Reversals from OB levels are more bearish than the index simply staying OB. As a result my timing model has fallen from 1.5 to 1.0. I'm going to stay with my 70% equities 30% cash allocation, but I might open a small short term position in UAPIX as a hedge if the market doesn't get too terribly battered tomorrow.
I don't know if the intermediate cycle has peaked yet, but I do believe the market is going to get hammered short term.
tom k, Being in or out of the market is one decision, and what to be in is another. As for the latter, do you ever wonder if it would be simpler and less risky to just use broad indices with a less diverse drill down instead of sectors or countries? By broad I mean a collection of categories that I think have low correlation among them:
1.domestic larger cap style (growth or value)
2. intl style (growth or value)
3. intl continents (asia, europe,or japan)
4. small cap style(growth or value),
5.hard assets (natural resources,reits,metals,etc would be nice to have just one etf on this).
Just five positions, weighted per relative strength or even equally. The first four positions have available etfs to represent them. Are you gaining that much more with focused bets? Not challenging, just curious. FWIW,ytd,
u.s. value large capis19%
small caps value 28%
intl value 23%
intl latin america 31.4%
..of course the required active management could produce lower or higher returns in each of these above positions/categories.
anon 5:40, you make some excellent points. First, keep in mind this strategy only represents 1/3 of my total portfolio.
In practice, I'll very often use EZU, IEV, ILF, or EEM instead of more narrowly focused country funds. It depends if I believe a momentum theme is regional or if performance is based on factors inherit to the country/companies the fund represents. For example, I currently own ILF, but I do not own Mexico or Brazil. Countries like China can be considered a region by itself.
I also manage risk by placing stops 4.5 ATRs below each fund's most recent highs, so one country/position rarely gets out of hand.
For international positions, I use ETFs, for U.S. sectors, I use Profunds. There are many reasons for this, but one of the most important is to avoid 3-day settlement periods where moneys are unavailable for use. I'm using this strategy within a 401k self-directed brokerage account, so I have no choice of what broker I use.
Profunds sector funds are cap-weighted - I would consider all but one of them large cap. For this reason, I include Profunds that represent sm/mid, value/growth styles. These 4 are treated as individual sectors. I definitely track cap/style momentum as well as other factors. Btw, Wachovia publishes a monthly newsletter that does a nice cap/style indicator break out: http://www.wachoviasec.com/wachoviasec/WSICommentary/qsm_11-22-06.pdf
I can't tell you definitively "focused bets" are better. Also, I don't know if the momentum anomaly holds true for REITs or commodities, so I don't use them in this strategy.
Since you post your models every week TomK, tell us how much you are up ytd? Are you really outperforming at all or is this just another complicated strategy that fails in the end?
22.17% ytd
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