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You can see money moving out of momentum recently and a fair amount of it seems to be going defensive. In recent days, you've seen market up, then sell off as the day goes on.
Meanwhile, in IPO-land, Candy Crush (KING) continues to get obliterated. I think some of today's IPOs didn't do well either, aside from the CBS Outdoor advertising IPO.
Personally, I have been moving a little more towards defensive. I don't think things are going in the toilet, but I think if you have investments in anything remotely "sexy" (cloud computing, etc), I think you'd better have a long-term view.
@scott, I never understood this move to defensive sectors as an allocation strategy unless it is a very short term momentum strategy.
Perhaps it is a vestige of a few decades ago when asset classes moved in economic cycles and there was a significant period of time when defensive stocks over performed but that doesn't seem to be valid anymore in the last decade or two.
If there is a drop in the market from sector rotation, defensive sectors go up for a couple of weeks and then go down as the next hot sectors pick up momentum. For example, this may happen with EM this time. Moving into utilities at this time will likely lose money when that happens.
If the market drops due to overall economic conditions, then all of these sectors are correlated and they all go down. So going to defensive sectors doesn't help other than lose less money. And when the market recovers, the defensive sectors underperform significantly to have made that move not a good one.
Clearly, there is an advantage to have the defensive sectors as part of a well diversified portfolio but the movements don't make sense and seems like an emotional move than a logical one.
The only scenario where it might make sense is in a long, protracted sideways market with a lot of volatility in high beta sectors and defensive sectors with dividends make sense but it seems like a very low probability bet (except for permanently wrong permabears).
If one is actively allocating, why not just go to cash instead instead of another correlated but low volatility sector? Or just sit tight with a well diversified portfolio and ignore these movements.
Not challenging you, just trying to see the rationale for what is a popular move.
Not challenging you, just trying to see the rationale for what is a popular move.
For me, it's a little bit of trimming around the edges and that money went to a couple of existing long-term defensive positions (individual names and not utilities), which I felt to be an appealing destination at this point in time for a number of reasons.
"If there is a drop in the market from sector rotation, defensive sectors go up for a couple of weeks and then go down as the next hot sectors pick up momentum. For example, this may happen with EM this time. Moving into utilities at this time will likely lose money when that happens."
I just really don't have an interest at all. I don't care about what sector is this, that or the other today or two weeks from now. That really doesn't even enter into my decisions.
"...movements don't make sense and seems like an emotional move than a logical one."
Sigh. I'm very happy with the decisions that I've made (which I didn't even give the specifics of) and consider them very logical.
@scott, I never understood this move to defensive sectors as an allocation strategy unless it is a very short term momentum strategy.
Perhaps it is a vestige of a few decades ago when asset classes moved in economic cycles and there was a significant period of time when defensive stocks over performed but that doesn't seem to be valid anymore in the last decade or two.
If there is a drop in the market from sector rotation, defensive sectors go up for a couple of weeks and then go down as the next hot sectors pick up momentum. For example, this may happen with EM this time. Moving into utilities at this time will likely lose money when that happens.
If the market drops due to overall economic conditions, then all of these sectors are correlated and they all go down. So going to defensive sectors doesn't help other than lose less money. And when the market recovers, the defensive sectors underperform significantly to have made that move not a good one.
Clearly, there is an advantage to have the defensive sectors as part of a well diversified portfolio but the movements don't make sense and seems like an emotional move than a logical one.
The only scenario where it might make sense is in a long, protracted sideways market with a lot of volatility in high beta sectors and defensive sectors with dividends make sense but it seems like a very low probability bet (except for permanently wrong permabears).
If one is actively allocating, why not just go to cash instead instead of another correlated but low volatility sector? Or just sit tight with a well diversified portfolio and ignore these movements.
Not challenging you, just trying to see the rationale for what is a popular move.
I don't know about today, but back when the internet bubble burst (March 2000) you would have done very well by moving away from growth stocks and into value stocks, particularly during the rest of 2000 and 2001. I suppose it would only make sense when certain sectors of the market become grossly overvalued which, of course, Efficient Market Theory explains to us is impossible.
@Scott. It sure does seem like the value (low multiple) stocks are doing better lately than the growth stocks. Since I tend to invest in the former, hope the trend continues.
@Cman. I worry that most funds can't "just decide to go to cash," can they?
@Vert. If there are some sectors that are "grossly overvalued," (eg, "cloud") let's hope any collateral damage is minimal.
@vert, the value premium has always been an argument against EMH. Defensive sectors aren't necessarily value. These are the typical utilities, healthcare, staples, etc.
@charles, mutual funds can and do go to cash often primarily between end of quarter reporting. They just have to dress up towards the end of the quarter.
My point about defensive sectors is the apparent move of money from hot stocks to defensive sectors as a sector rotation strategy. This is different from holding an allocation (even an over allocation) in defensive sectors as an allocation strategy.
I think the move to defensive sectors as reported in the media is an illusion and bad indicator in that it is not the same money moving but rather hot areas being net sold to take profits while the lagging sectors continue to get their allocation as net buys from other sources.
The distinction is important in that money that rotates to defensive sectors as an active allocation strategy based on market conditions will underperform for reasons stated earlier relative to sitting tight for long term investors or moving to cash for momentum players or even people who have a long term allocation to defensive sectors as a low beta allocation strategy which can also make money over the long term.
Playing around the edges is typically a self delusional move. Money doesn't get made there, only in money that is committed significantly and betting on the right assets or being fully diversified. The small money moving around the edges are forgotten if they happen to be bad moves since they don't make much difference and remembered fondly when they do as self-affirmation of investing prowess. See it in investors all the time.
Comments
Regards,
Ted
http://www.marketwatch.com/story/us-stocks-rise-dow-sees-triple-digit-gain-2014-03-28/print?guid=7D32F762-B678-11E3-81E4-00212803FAD6
Meanwhile, in IPO-land, Candy Crush (KING) continues to get obliterated. I think some of today's IPOs didn't do well either, aside from the CBS Outdoor advertising IPO.
Personally, I have been moving a little more towards defensive. I don't think things are going in the toilet, but I think if you have investments in anything remotely "sexy" (cloud computing, etc), I think you'd better have a long-term view.
Regards,
Ted
http://finviz.com/groups.ashx
Regards,
Ted
Yada Yada Yada: Seinfeld:
Perhaps it is a vestige of a few decades ago when asset classes moved in economic cycles and there was a significant period of time when defensive stocks over performed but that doesn't seem to be valid anymore in the last decade or two.
If there is a drop in the market from sector rotation, defensive sectors go up for a couple of weeks and then go down as the next hot sectors pick up momentum. For example, this may happen with EM this time. Moving into utilities at this time will likely lose money when that happens.
If the market drops due to overall economic conditions, then all of these sectors are correlated and they all go down. So going to defensive sectors doesn't help other than lose less money. And when the market recovers, the defensive sectors underperform significantly to have made that move not a good one.
Clearly, there is an advantage to have the defensive sectors as part of a well diversified portfolio but the movements don't make sense and seems like an emotional move than a logical one.
The only scenario where it might make sense is in a long, protracted sideways market with a lot of volatility in high beta sectors and defensive sectors with dividends make sense but it seems like a very low probability bet (except for permanently wrong permabears).
If one is actively allocating, why not just go to cash instead instead of another correlated but low volatility sector? Or just sit tight with a well diversified portfolio and ignore these movements.
Not challenging you, just trying to see the rationale for what is a popular move.
"If there is a drop in the market from sector rotation, defensive sectors go up for a couple of weeks and then go down as the next hot sectors pick up momentum. For example, this may happen with EM this time. Moving into utilities at this time will likely lose money when that happens."
I just really don't have an interest at all. I don't care about what sector is this, that or the other today or two weeks from now. That really doesn't even enter into my decisions.
"...movements don't make sense and seems like an emotional move than a logical one."
Sigh. I'm very happy with the decisions that I've made (which I didn't even give the specifics of) and consider them very logical.
I don't know about today, but back when the internet bubble burst (March 2000) you would have done very well by moving away from growth stocks and into value stocks, particularly during the rest of 2000 and 2001. I suppose it would only make sense when certain sectors of the market become grossly overvalued which, of course, Efficient Market Theory explains to us is impossible.
@Scott. It sure does seem like the value (low multiple) stocks are doing better lately than the growth stocks. Since I tend to invest in the former, hope the trend continues.
@Cman. I worry that most funds can't "just decide to go to cash," can they?
@Vert. If there are some sectors that are "grossly overvalued," (eg, "cloud") let's hope any collateral damage is minimal.
@charles, mutual funds can and do go to cash often primarily between end of quarter reporting. They just have to dress up towards the end of the quarter.
My point about defensive sectors is the apparent move of money from hot stocks to defensive sectors as a sector rotation strategy. This is different from holding an allocation (even an over allocation) in defensive sectors as an allocation strategy.
I think the move to defensive sectors as reported in the media is an illusion and bad indicator in that it is not the same money moving but rather hot areas being net sold to take profits while the lagging sectors continue to get their allocation as net buys from other sources.
The distinction is important in that money that rotates to defensive sectors as an active allocation strategy based on market conditions will underperform for reasons stated earlier relative to sitting tight for long term investors or moving to cash for momentum players or even people who have a long term allocation to defensive sectors as a low beta allocation strategy which can also make money over the long term.
Playing around the edges is typically a self delusional move. Money doesn't get made there, only in money that is committed significantly and betting on the right assets or being fully diversified. The small money moving around the edges are forgotten if they happen to be bad moves since they don't make much difference and remembered fondly when they do as self-affirmation of investing prowess. See it in investors all the time.