Sunday, March 2, 2014

03/02/2014 Sector and Style Models at maximum defense


Style Model
Large Value
Sector Model
XLU
2.17%
Large Portfolio
Date
Return
Days
ABX
4/11/2013
-15.12%
325
NEM
9/30/2013
-16.18%
153
EW
10/28/2013
-9.47%
125
JOY
11/18/2013
-2.55%
104
TM
2/3/2014
0.47%
27
RS
2/10/2014
-0.50%
20
CSCO
2/12/2014
-4.01%
18
INT
2/18/2014
0.22%
12
CBI
2/20/2014
5.29%
10
BT
2/24/2014
0.66%
6
(Since 5/31/2011)
S&P
Annualized
12.47%
Sector Model
Annualized
25.83%
Large Portfolio
Annualized
27.27%


Rotation: selling EW; buying BHP (in the mining sector).

Just a note of caution, the sector and style models are now as defensive as possible.  The investment matrix shows the following set of rankings:

Large Value
Small Value
Mid Blend
Small Growth
Small Blend
Mid Value
Large Blend
Large Growth
Mid Growth
Utilities
1
3
6
9
17
21
23
25
69
Materials
2
5
10
13
19
27
32
36
71
Finance
4
7
11
14
20
28
33
38
72
Staples
8
12
15
16
31
40
42
45
76
Technology
18
22
29
35
49
51
54
56
77
Cyclicals
24
34
41
44
53
59
60
64
78
Industrial
26
37
43
47
55
61
63
66
79
Energy
30
39
46
48
57
65
67
68
80
Healthcare
50
52
58
62
70
73
74
75
81


Time to throw in the towel?

Well, perhaps for some, but we have to keep in mind that I’m using rotation models, rather than timing models.  Let’s take a look at the year to date for the sector model:




Although the model CAN take a dip on occasion, it tends to outperform more when the market goes down than when the market goes up.  The dips are when the model shows its best advantage.

The reason for this is the nature of the model itself: it looks for beaten down sectors and industries that are ready for mean-reversion.  In wildly bullish times investors just chase momentum.  It’s in times of defensiveness that investors look for value and safety.

You see, money doesn’t actually disappear to the extent that the market would make it seem.  Normally the first thing that institutional investors do is to move money from one place to another.  I just try to be first in line to welcome them when they move money my way.

Right now, then, I’m looking for large to outperform small; value to outperform growth; and utilities to outperform more aggressive sectors.  The one thing all these have in common is that they tend to move slower than the rest of the market.

My guess is that we are still locked and loaded for a correction.

Time will tell.

Investing isn’t really about knowing the future, so much as simply being prepared for whatever it decides to bring.

Tim



2 comments:

  1. Hi Tim,

    What's the time horizon on XLU leadership? Short-term it's the clear laggard.
    http://www.sectorspdr.com/sectorspdr/tools/sector-tracker

    ReplyDelete
  2. The average holding period is 24 calendar days. Current holding period is 15. That's average, though. A hold could just as easily be 1 day or 100 days.

    The average return rate on the present configuration of the model is 30% annualized. On any given week it could certainly under-perform.

    ReplyDelete