Ron Peterson wrote:
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The newsletter is NoLoad FundX; it is highly ranked by Hulbert, the
newsletter ranking newsletter.

They compute a "Fund X score" based on weighted historical performance
and classify mutual funds based on risk. The newsletter suggests a
balanced portfolio of Class 1, 2 and 3 mutual funds.

In addition they make available online a database that allows you to
search for your own portfolio. I search for the top Class 1 mutual
funds (most risky) and then pick the top six Fidelity funds from the
top 50 Class 1 funds. Typically there are 5 Selects and Latin America.

There is more than market risk in this strategy so I limit it to 10% of
my portfolio. Over the past 18 months I was in Energy and Energy
Service as gas prices went up and out as gas prices went down. I also
was in Latin America the entire time and that has doubled.

I'm not sure our moderators like very specific recomendations like
this; this discussion group avoids pushing "get rich quick" schemes.
I can reply by PM if necessary.

Frank

What's the newsletter?

Also, how has the S&P done in the same period (i.e., sector vs index)?

On Mon, 20 Nov 2006 08:38:29 -0600, "FranksPlace2"
<FranksPlace2[at]gmail.com> wrote:

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FranksPlace2 wrote:

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That's very good, can you give some more details about when you shift
sectors? Do you move into sectors that are down? Or, do you look for
trends?

--
Ron

Gary wrote:
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As noted below I have been using Select sector investing for about 18
months, moving into new sectors based on the performance based model.
My annualized return for the period is 22.3%.

Frank

joetaxpayer wrote:
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There were at least a dozen that did better than IYE over the 5 year
time period.

Looking at the 3 year return less than 20% had less than a 6%
annualized return. And, only one had a negative return.

- quote -

IXN is dominated by a small number of companies whose stock is priced
at a high p/e, making the market risky.

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I think that your strategy is good, but if you almost all your
investments in the S&P index, it may reduce your investing flexibiliy.

--
Ron

Ron Peterson wrote:

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Looking through iShares, I think you found the one with the best return,
up about 125% (plus whatever dividends) vs the S&P up about 22%.
But what makes you think Gary would have chosen this sector five years
ago? IXN (Technology) is barely up at all, and this sector puts out
little in the way of dividends (.04%). His risk is being wrong, down,
while the rest of the market is up.
(Disclaimer - I am a fan of being overweighted S&P index, low cost. So
over time, I am guaranteed to beat the index (the dividends exceed the
expenses of the index, and the index doesn't account for dividends, so
I'll beat the index, but lag the S%P total return by .05%))

JOE

Gary wrote:

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Your risk isn't that high. For instance, in the last 5 years, iShares
DJ US Energy (IYE) hasn't had a drop of much more than 20% in the short
term while it has doubled over the period.

--
Ron

Tad Borek wrote:
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This is where I'd look at a bit a back testing. I've seen charts that
break out investment choices and rank them each year. Large cap, small
cap, both growth and value for each, real estate (REITS), bonds, gold,
etc. No one class is in the top all the time, and even overlaying the
business cycle, and having the advantage of hindsight, came to the
conclusion that unless I knew with certainty when we were headed for a
recession or expansion, that going forward I would not be able to choose
correctly.

I suspect a similar thing will happen with sector fund analysis. You can
rank each sector with hindsight, but have a tough time predicting which
sector to choose moving forward. If this is done with a small portion of
funds, I don't see much risk, nor much impact to one's portfolio. But if
done with most of one's assets, one set of bad choices can really
underperform the market. I'd like to see what the OP finds as he
researches this.

JOE

Gary wrote:
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Well there's always trying it with play money first, just create an
imaginary portfolio with $10k in it and run it for awhile. Though if
you're trying to capture multi-year cycles among the sectors, you might
not live long enough to have a statistically valid sample of your sector
picks!

The other point is...are sectors even significant as a selection
criteria, or is it as irrelevant as "companies with blue logos"? If you
buy into the Chicago-school view of passive investing (Fama/French
research suggesting that risk and returns are largely explained by
looking at book to market value and company size) you don't even care
what the industry is. Has it been more valid to group JCPenney with
Wal-mart, Williams-Sonoma or A&F, or were its characteristics driven
entirely by non-sector factors?

-Tad

Gary <gary_w1[at]hotmail.com> wrote:
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Try running some paper portfolios for a year or so. Define and *write down*
rules for each portfolio. *Write down* why you buy and sell each fund. At end
of the year, review your portfolios and buy/sell decisions. Don't forget to
include any commissions.

You should be able to tell whether you are adding value compared to index
strategies. If you are, you might want to start playing with real money. Be
aware that strategies that work one year could fail the next. That's why it's
important to write down rules and trading decisions. You must know more than
"this strategy worked this year". You must know why it worked.

Take a look at www.aaii.com for a variety of stock and mutual fund strategies.
(no sector fund strategies, however).

-- Doug

On Fri, 17 Nov 2006 03:56:32 -0600, Gary <gary_w1[at]hotmail.com> wrote:

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This is from an old blue chip index fund buy-and-hold 100% stocks guy
(except for dedicated savings accounts like car, vacation, emergency,
next house project, etc.).

Every time I get the itch to try something different - usually fueled
by a desire to chase returns - I've come to the conclusion that the
best thing for me to do is to lie down until the urge passes. I only
wish I could have come to that conclusion earlier. <grin


-HW "Skip" Weldon
Columbia, SC

On Thu, 16 Nov 2006 12:42:25 -0600, Tad Borek <borekfm[at]pacbell.netwrote:

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Here I am, sitting on a fence, not quite sure whether to try this
thing which is a temptation for me. I find your comments very
discouraging, and maybe extremely wisely so. I guess I'll let the
temptation drop until the next time it rears its ugly head.

jIM wrote:

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I have most of my investment in about 5 sectors: Tech with 9 stocks,
home builders with 3 stocks, energy/natural resources with 9 stocks,
health with 5 stocks, and international with 1 ETF. I have my 401k in a
mutual fund (< 5%).

--
Ron

"Tad Borek" <borekfm[at]pacbell.net> wrote
- quote -

Just my opinion, but from my reading, many financial
planning gurus along with serious statisticians would take
offense at this! "Technical analysis" may be argued to be
nothing more than applied numerology--one gets enough
numbers and looks at them long enough, disregarding all
rules for random distributions yada, and some pattern will
seem apparent. Just like watching the clouds and seeing
shapes formed by them. In TA, little to no attention is
given to company fundamentals.

- quote -

Correct, very much in the same way that Vegas attracts
gamblers by the millions each year. Some win (and generally
not regularly). Most necessarily lose.

Gary wrote:
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I'm always interested in the motivations for picking a specific strategy
like this. I personally like stock-picking, using a value/contrarian
approach, and it has appeal to me because I'm also the guy who takes
vacations the week after Thanksgiving when the fares are cheap and the
restaurants are happy to see you.

You say you're a statistician and it makes some sense that you might
gravitate to something that builds on that, for example sector rotation
involving technical analysis. But the question I think everyone needs to
ask is whether it makes sense to deviate from that "default" portfolio
of index funds. If a strategy isn't likely to leave you with more money
why would you bother? This isn't for entertainment, it's for making
money. If you want entertainment, play fantasy football which is also
stats-intensive.

The appeal of sector rotation is that individual sectors are much more
volatile than the overall market and there appears to be the opportunity
for juicing returns by avoiding the lousy sectors and riding the winning
ones. Or maybe it's buying the lousy sectors and avoiding the overpriced
winning ones. Or something else...and there's the rub. Believe me this
is a strategy that is quant-jocked to death and there are plenty of
people playing it. I don't know of a winning strategy and if there was
one why would you publish it? Not that I think there even could be a
winning strategy, just saying.

So the question is, do you think you have any particular insights or
skill into what sectors to pick (or avoid), so you'll do well at it?
Rhetorical question but without an affirmative answer...again...why
bother? The point of "efficient markets" and indexing is that it's very
difficult to beat the market, and that securities prices reflect
available information. By extension, sector valuations reflect available
information, because sectors are just lists of stocks grouped by SIC
code or some similar criteria. So making accurate calls would require
both excellent insight into the factors that affect a given industrial
sector (arguably, you'd need to know this for every sector), and good
skills at predicting where these factors are heading (whether it's drug
price regulation, interest rates, OPEC policy, tax policy, and on and
on). Personally I don't think these things are knowable or predictable,
making this a low-probability kind of strategy. YMMV.... =)

-Tad

Gary, I echo what Will and Ron said. An extremely popular
strategy is to (a) have an asset allocation plan; and (b)
rebalance say once a year so as to remain consistent with
the plan. For ideas on allocating, I suggest experimenting
with some of the free online asset allocators linked at
http://home.earthlink.net/~elle_navorski/id8.html. Then
continue picking index funds or, in the alternative, maybe
index ETFs, to achieve your desired asset allocation.
Fidelity has restrictions on frequent trading of many of its
mutual funds, so ETFs may be preferable. Vanguard, for one,
has a persistently improving stable of index ETFs which of
course you could trade within your Fidelity account.
(Disclaimer: I am a 20+ year Fidelity customer, but I think
Vanguard has far better mutual fund and ETF offerings. Other
brokerage/ETF/mutual fund houses are increasingly
competitive with both.)

You are certainly on the right track by holding index funds
in general. The approach above is mechanical, but this
reflects the virtues a disciplined, and so successful,
investor possesses. Caveat: "Chasing returns" is not the
hallmark of a disciplined investor. Resist buying after a
particular sector fund has risen, in the belief it will keep
rising. Study the vagaries of mass markets and businesses to
'keep the faith' that investing in companies will beat
inflation by a lot and preserve your investments.
http://www.joetaxpayer.com/book.html has a very good list of
books, ones that are often mentioned here and so tend to be,
IMO, sound recommendations. Even just skimming one or two at
a time over a week or so, followed by asking questions here
or at similar fora, can help your study a lot.

Gary wrote:
- quote -

I have about 10% of my portfolio invested in Fidelity Selects and am
going just what you suggest. I subscribe to a highly rated newsletter
which provides a monthly ranking (based on historical performance) of
many funds and I screen the top Class 1 (risky) Fidelity funds, mostly
all Selects.

I am pleased with the results.

Frank

Gary wrote:
- quote -

Admittedly, the term "conservative" has different meanings to different
people, but I would not think that sector rotation, as you've described
it, would be considered conservative by many. This is essentially a
market-timing strategy, you've even mentioned momentum components. That
sounds fairly aggressive to me.

-Will

- quote -

A few questions-

1) how narrow would you define your sectors?

A) Healthcare, Financial, Technology, and Consumer durables?

or

B) Biotech. Pharmaceuticals, Banks, Real Estate, Media and
Telecommunications, Internet, Software, Consumer Products, Leisure
products.

2) How much are you expecting to gain from this- as percent of
portfolio/ relative to gains of overall portfolio?

3) When will this money be taken from the "sector pool" and added back
to normal retirement income stream? Annually, every 5 years, in 15
years....?

Tad:

These are very good questions, and further reveal my intent.

I have no current meaning for the "top 5". But they would refer to
the 5 sector funds that are either (1) performing well, or (2) have
the greatest performance prospects by some criterion that I am not
aware of as of now.

Why 5? No special reason. Not all of them, not none of
them...somewhere inbetween.

Same amount in each? Don't know, except a good strategy might weight
some sectors by whatever criterion, giving higher weights and
therefore a higher percent of the pot. For example, a momentum model
would give more weight to sectors on the rise at a faster rate.

I would not in a million years do this with all my money, just 5 or
10%.

Why this strategy? is the most interesting question to me. You set me
thinking about it. I am currently mostly in index funds...very
boring, but it works (I'm retired). As a next step toward some more
active investing, sector rotation impresses me as the most
conservative. I don't want to go overboard; just something with a bit
more involvement. As a former statistician, I thought this was
something I might be able to sink my teeth into.

On Tue, 14 Nov 2006 18:17:37 -0600, Tad Borek <borekfm[at]pacbell.netwrote:

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