03/14/2014 sector update

The sector model sold XLP and bought XLU before the close.

03/13/2014 sector update

The sector model sold XLU and bought XLP before the close.

03/09/2014 rotation

Style Model	Large Value
Sector Model	XLU	1.01%
Large Portfolio	Date	Return	Days
ABX	4/11/2013	-17.08%	331
NEM	9/30/2013	-11.35%	159
JOY	11/18/2013	0.67%	110
TM	2/3/2014	-0.70%	33
RS	2/10/2014	2.24%	26
CSCO	2/12/2014	-4.32%	24
INT	2/18/2014	-0.91%	18
CBI	2/20/2014	5.43%	16
BT	2/24/2014	-1.61%	12
BHP	3/3/2014	-1.48%	5
(Since 5/31/2011)
S&P	Annualized	12.80%
Sector Model	Annualized	25.14%
Large Portfolio	Annualized	27.20%

 

Rotation: selling INT; buying DUK (in the Eastern Utility industry).

The sector and style models remain stubbornly defensive, in spite of the continued uptick in the market – one of the reasons I don’t time.

The other reason I don’t time is that I’m no good at it, but that’s a different story.

Tim

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