Wikinvest Wire
Saturday, September 15, 2007
The Big Picture For The Week Of September 16, 2007
About two and half minutes into the video I say the word outperform twice when I should have said underperform.
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17 comments:
Roger.
I heard an analyst on NBR last night saying that financials are still a bad sector looking forward.
I was wondering if given the Fed's possible interest in fund rate cuts, could this sector turn around soon? I am chomping at the bit to buy some good banks (CS, BAC, USB, C, etc.) with their good dividends.
I have noticed in past years that these kind of down sectors can spring back rather quickly into being the top sectors in the following year due to their relative stock value.
Do you see further significant decline in the financial sector as well?
I have said the same thing on this a lot. an inverted curve signals high probability of trouble for financials. Until it normalizes I am underweight and favoring foreign, lower beta, high yielding banks
Roger,
Have you ever read the book "Trade Your Way to Financial Freedom" by Van K. Tharp? (Horrible, schlocky title to be sure, but a great book).
Even if you're not an active trader there is a lot of great analysis on risk management via position sizing. I think you might enjoy it even though it doesn't apply directly to your strategy and methods.
I do not know the book. for anyone else who is curios here is the Amazon link to it.
I have a plane ride in October, might be a good read. thanks.
Models this week:
Timing Model = 1.5
80% long, 20% cash
Global Allocation of long positions
MSCI EAFE Index 30
MCCI Emerging Markets Index 30
Russell 3000 Index - U.S. 40
Top US Sectors
U.S. Oil & Gas 5.0
U.S. Technology 4.5
Composite Internet 4.5
U.S. Oil Equipment, Services & Distribution 4.5
Precious Metals 4.0
U.S. Semiconductor 3.0
U.S. Industrials 3.0
U.S. Telecommunications 2.5
Top Intl ETFs
FTSE/Xinhua China 25 Index Fund 3
MSCI South Korea Index Fund 3
MSCI Brazil Index Fund 3
MSCI Emerging Markets Index Fund 3
MSCI Hong Kong Index Fund 3
MSCI Pacific ex-Japan Index Fund 3
S&P Latin America 40 Index Fund 2
MSCI Germany Index Fund 2
MSCI Canada Index Fund 2
MSCI Australia Index Fund 2
MSCI Singapore Index Fund 2
Strategy 3
EAFE 14.3%
Emerging Markets 14.3%
Money Markets 14.3%
Industrial Materials 14.3%
Agriculture 14.3%
Precious Metals Precious Metals 14.3%
U.S. Large Cap 14.3%
U.S. Small Cap 0.0%
U.S. Long Bonds 0.0%
U.S. REITs 0.0%
Strategy 3
EAFE 14.3%
Emerging Markets 14.3%
Money Markets 14.3%
Industrial Materials 14.3%
Agriculture 14.3%
Precious Metals Precious Metals 14.3%
U.S. Large Cap 14.3%
U.S. Small Cap 0.0%
U.S. Long Bonds 0.0%
U.S. REITs 0.0%
Tom K, if you are willing to share, I'd love to know more about your Strategy 3. Tactical asset allocation is a core element of my investment strategy (I do some individual stock-picking as well) so I am interested in how others do it.
I think we might be a little on the same page or at least chapter. My REIT exposure is down to 3% (reduced substantially at the end of May), and I am contemplating increasing my precious metals exposure and I see you have 14%.
Are your decisions strictly 100% quantitative model driven, or is there some qualitative analysis as well?
"Until it normalizes I am underweight and favoring foreign, lower beta, high yielding banks"
What. Like Northern Rock?
Mike C,
I've ventured into TAA in the last year. Just wished that I had acted with conviction. For nontaxable portfolios it's a good fit, I think. I am using a canned software program that measures alpha for relative strength ranking. TAA is way out of fashion these days ,but the quant guys certainly use it.Some 401k programs, like some fed employees, have a real advantage. They can trade daily among an array of funds and specify percentage of allocations at will. Jealous to the core. Do you follow any blogs? Personally, wouldn't mind finding more discussion on this
strategy.
jasper
This was the beginning of the concept: http://tinyurl.com/2nunzs
I added more asset classes and instead of creating a toggle between long and cash, I opted to have all long positions share an equal portion of the portfolio. "Money Markets" are always considered a long position. I'm using 200dma end of week close.
Important caveat: I haven't backtested this yet. Also you would definitely want to do this within a tax-advantaged account. You would also want to trade as many asset classes as possible within the same fund family. Profunds has vehicles for most of these and you can use fund "exchanges" to rebalance positions.
Jasper, Mabane Faber's http://worldbeta.blogspot.com/ has a lot of good TAA content.
tomk,
Mebane was a great find, at first. For me some exceptional presentations but too discontinuous in his posts...if that makes sense..and not that much discussion. The ideal would be a Rogeresque discourse on one's process with TAA. You, tom, do this to some extent within this blog and I find it quite interesting. Appreciate the obvious but overlooked use of Profund family but this I assume would require parking funds directly into their account. Personally, I'm at Fidelity and don't want to have two online accounts. At Fido, it cost 75 for a round trip in a profund which I have on the drawing board in the event i want an ultrashort.
Re MM as an asset class I use it if it is ranked highest relative to the russell 3000...but not as a standalone as you do in "strategy three." Tom, can you share how you happen to select the asset classes but not others in S-3?
FWIW, I looked at what would have been ytd results if I had religiously abided by the mechanical signals: 29%. Most strategies only required weekend review and buying/selling at Monday's close. A few require daily review and buying/selling next day's close. All strategies are backtested 3-5 yrs, with win rates that range from 56 to 75%.Trading frequency varies from 3 to 15 per year, most around 8 times. My faith in this methodology grows; sure would be easier to pull the trigger if it was not my money. Theoretically, highest relative rank etfs within different groups(such as core,domestic, international, global) and different time periods: tlt, xes,ige, pbw, xlu, gld, fxi,and ewy. I also have a select group of new etfs that are not hybrids. Backtesting limited to one yr. In this group I hold ihi but an exchange to dbn is called for next week. Commodities and asia dominate.
posted above, jasper
jasper,
You don't need a Profunds account -I trade Profunds in both my Scottrade IRA accounts and in my 401k brokerage window - Chase. You can even avoid commissions when you use the exchange funds feature. Profunds expense ratios are high though.
All the asset classes in S-3 map to securities that are readily available and do a reasonable job of capturing the behavior of the asset class. I would have liked to add Softs, Inductrial Metals and Energy commodities (crude, gasoline, heating oil, natural gas) but I haven't seen any ETFs or Mutual Funds that don't have significant problems.
Pulling the trigger on a system with real money is indeed difficult - that's why I like strategy diversification. Every strategy goes through good periods and bad, but if you can identify 2 or 3 strategies that have proven themselves over long periods, you don't have to constantly second-guess yourself. Strategy diversification has been extremely beneficial to me both psychologically and financially.
Tomk:
Are you using DBA for agriculture?
When you mention "softs" are you referring to soft commodities? If so then that would be DBA which some may consider problematic. MOO looks to be the best agriculture proxy, in theory, and its index has gone parabolic.
Thanks for sharing. The "psychological and financial" aspects of investing go hand in hand. Excellent point./jasper
tomk:
Taking a liking to your notion of strategy diversification, S=1 and S-3 strike me as being in the camp of relative strength;and, S-2...as long as it get rebalanced..is neutral to slightly favoring value. Is this a fair characterization? Do you think that something that is more value based(buy low sell high) would add to strategy diversification?
jasper
MXI for Ind materials, DBA for Ag.
DJ-AIGCI would be ideal for softs if it traded on a US exchange.
I don't really view S-3 as a relative strength play because any asset class that is in an uptrend is treated equally. A RS strategy would screen out underperformers even if they were technically in an uptrend.
Oh yeah, I've been thinking about a pure contrarion strategy. Short asset classes with highest 3-5 year RS, long asset classes/sectors with lowest 3-5 year RS. It's an untested idea.
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