Tom Lydon at ETF Trends says, "Get to the ETF party?" Lydon points out the list of top performers. Please take a good look to see what was available.
Investors might well ask the following:
How can I find these ETF's before they are on the top performer list?
Methods for ETF Analysis
Part of the operation in our company is the fundamental analysis of stocks. It is a good program, beating the S&P 500 by a wide margin over the nine years of our history. Despite this, we will freely confess that we would never have owned any of the ETF's or the underlying stocks listed here as part of our fundamental stock selection. Why not?
The fundamentals of foreign stocks are too difficult to analyze. If you are suspicious of U.S. corporations and accounting, just try evaluating China or Thailand or Argentina. Do you really think that Ben Graham would be excited over the FXI or the LXI?
Full Disclosure: Our "value" program does own some companies with good multi-national exposure.
If you want to participate in these markets, you need a method that fits the circumstances.
Our System
We have invited readers to look over our shoulder in real time as we employ our sector rotation method. We use our TCA-ETF model to identify sectors, mostly iShares, that we expect to do well over the next thirty days or so. The choices are based upon proprietary technical indicators using concepts familiar to all -- price, volume, moving averages, with a lot of sophisticated filtering and a few brilliant insights.
We admit it. We would not own FXI or LXI without this method? Do you? As the price increased, have you been able to hold on?
Using A System
This is intended as an educational series. There are many different methods that might have chosen these ETF's a month ago. Our point in this series is that a sector rotation approach requires the following:
- A system -- some system -- that highlights promising choices;
- A method for diversification -- too much in one basket is always bad;
- Careful testing of the system -- without this the investor will not have confidence.
We hope that your own system has done well. These trades are not for everyone, since risk tolerance and time frames vary for each investor. Your own system must adjust for this, but everyone needs a disciplined method.
Let us turn to the weekly update of our approach.
Update of Results
So far, so good. The model continues to work well. There were (amazingly) no changes in holdings during the last week. Sometimes holding on to a position is the most difficult trade.
We know that these runs always end with losses. There is a temptation to sell, "taking money off the table." If disparities get too great, we will rebalance the portfolio. The model does not try to "call tops." If it did, we would have missed the major part of this rally. (click table to enlarge)
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