Posted by Vijay Singal on August 3, 2008
This is Portfolio 1 that will be invested on August 4, 2008 and divested on September 8, 2008. The 5 week period ensures that there are no trading costs through Fidelity. Fidelity charges a redemption fee on these funds if they are held for less than 30 days.
Other details are in http://beyondtherandomwalk.wordpress.com/wp-admin/post.php?action=edit&post=11.
The funds and the allocation for portfolio 1 are given below.
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Posted by Vijay Singal on July 27, 2008
This is Portfolio 5 that will be invested on July 28, 2008 and divested on September 1, 2008. The 5 week period ensures that there are no trading costs through Fidelity. Fidelity charges a redemption fee on these funds if they are held for less than 30 days.
Other details are in http://beyondtherandomwalk.wordpress.com/wp-admin/post.php?action=edit&post=11.
The funds and the allocation for portfolio 5 are given below.
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Posted by Vijay Singal on July 20, 2008
Fourth portfolio:
The Industry Momentum Trading Strategy takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given in other columns of this blog. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is July 21, 2008; and the exit date is August 25, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
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Posted by Vijay Singal on July 15, 2008
The table below shows the performance of each portfolio until July 14, 2008 relative to the S&P 500. Total returns including distributions are reported. SPY return including dividends is the proxy for S&P 500.
All five portfolios have done well relative to the S&P 500. Note that each portfolio is held for 5 weeks in order to avoid any redemption fees. Transaction fees are zero for all Fidelity funds that are traded on the Fidelity web site when held for 30 days.
Three portfolios completed a 5 week holding period. During that period, portfolio 1 outperformed the S&P 500 by 2.30%, portfolio 2 outperformed by 0.83% and portfolio 3 outperformed the S&P 500 by 2.60%. Week-by-week performance for the last 4 weeks shows that all portfolios outperformed the S&P500 in weeks 1 and 4, were about even in week 2, but underperformed in week 3. Again overall, the portfolios outperformed the S&P 500 by 3.08% to 0.13% over the last 4 weeks ended July 14.
Just fantastic performance all round. I think it is reasonable to expect the strategy to outperform the S&P 500 by approximately 1% over a 5-week period, giving us an excess return of 10% for the whole year. Let us see how rest of the year plays out. I am still waiting for the S&P 500 to turn positive.
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Posted by Vijay Singal on July 13, 2008
Third portfolio:
The Industry Momentum Trading Strategy takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given in other columns of this blog. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is July 14, 2008; and the exit date is August 18, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
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Posted by Vijay Singal on July 6, 2008
Here is the 2nd portfolio. The Industry Momentum Trading Strategy takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given in other columns of this page. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is July 7, 2008; and the exit date is August 11, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
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Posted by Vijay Singal on June 30, 2008
Restarting the strategy with the first portfolio. The Industry Momentum Trading Strategy takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given here. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is June 30, 2008; and the exit date is August 4, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
More details are in the strategy description on this blog.
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Posted by Vijay Singal on June 24, 2008
The table below shows the performance of each portfolio until today relative to the S&P 500. Total returns including distributions are reported. SPY return including dividends is the proxy for S&P 500.
All four portfolios have done exceedingly well relative to the S&P 500. Portfolio 1 earned -1.89% compared to -4.63% for the S&P 500 for the four-week period, an outperformance of 2.74%. Portfolio 2 outperformed the S&P 500 by 2.13%, portfolio 3 by 1.33% and portfolio 4 by 1.12%.
Just fantastic performance all round.
Caveat: These returns are unusually high. Normally, the weekly outperformance is only about 0.10%. Therefore, please don’t put too much weight on this performance.
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Posted by Vijay Singal on June 22, 2008
This is the fifth portfolio of the Industry Momentum Trading Strategy, which takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given here. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is June 23, 2008; and the exit date is July 28, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
More details are in the strategy description on this blog.
Posted in Finance | 2 Comments »
Posted by Vijay Singal on June 16, 2008
This is the fourth portfolio of the Industry Momentum Trading Strategy, which takes advantage of the fact that well performing industry sectors tend to continue to perform better than the market in the near term. A complete description of the strategy is given here. A brief description of the strategy is given after the portfolio.
The entry date for this portfolio is June 16, 2008; and the exit date is July 21, 2008.
If investment limitations can support at most 3 funds in any industry, exclude FSCSX, FBIOX, and FPHAX.
Industry Momentum Trading Strategy:
Industry momentum refers to a phenomenon where industries that have done well in one period also do well in the next period. This pattern in returns has been documented and verified through extensive research by practitioners and academics over the last several decades.
I use Fidelity Sector funds for the trading strategy because they are single-industry mutual funds designed to capture industry movements with a few stocks. The advantage of Fidelity Sector funds over homemade industry portfolios is that the cost of trading and maintaining a portfolio of Fidelity Sector funds is relatively small. Trading among Fidelity sector funds can be costless if the portfolio is held for at least thirty days and traded via the Fidelity website. The short-term trading fee is 0.75 percent if the fund is held for less than thirty days.
Trading strategy set up:
There are 43 Fidelity sector funds in 21 unique industries. Fidelity has 5 funds in health care: medical delivery, medical equipment, pharmaceuticals, biotech, and health care. I consider all of them in the same industry. On the other hand, there is a separate sector fund for gold, also an industry; for leisure, also an industry. When multiple sector funds constitute an industry, the amount to be invested is equally divided among the sectors.
Trading Strategy Implementation:
I intend to create a portfolio every weekend, which will be announced by morning of the first trading day of the week (usually Monday morning) so that funds can be bought at the close of the first trading day. Portfolio 1 is being announced this weekend (for trading on May 27th). Portfolio 2 will be announced for trading on June 2, portfolio 3 for trading on June 9, portfolio 4 for trading on June 16, and portfolio 5 for trading on June 23.
Since the holding period is 5 weeks, portfolio 1 will be reconstituted on June 30. Sector funds no longer in the new portfolio will be sold and exchanged for sector funds that need to be added to the portfolio. At that time, performance relative to other benchmarks will also be reported.
Though the strategy is designed for an investor in only one portfolio, you may participate in all 5 portfolios as a way of further diversification.
Taxes:
Note that this trading strategy relies on short-term trading. When compared with a buy and hold strategy, industry momentum will result in higher taxes. You can reduce your tax liability by trading in a tax-deferred account. In any case, it is important for you to compute your after-tax returns to determine whether or not the extra returns are sufficient to overcome the extra taxes.
Past Performance:
The annual return of this strategy for an 18-year period, from 1990 to 2007, is 16.79% compared with 12.28% for the S&P 500. The sector rotation strategy outperforms the S&P 500 by approximately 4.5% a year, on average. An investment of $100,000 grows to $660,000 with a buy and hold strategy and to $1,380,000 with sector rotation. Neither strategy considers tax liability.
The risk of the sector rotation strategy is marginally lower than the risk of S&P 500. The strategy outperforms the S&P 500 in 12 years out of 18 years. Of course, past performance is not necessarily a good indicator about future performance.
More details are in the strategy description on this blog.
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