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Hulbert: Picking funds with stellar recent returns
Academic research has demonstrated that momentum works in the investment arena for the near-term, hardly ever exceeding two years. Janet Brown has integrated that observation into her newsletter service and eventually into a series of mutual funds for over 30 years.
She is a tireless advocate for her product and is usually accessible at Money Show presentations.
Mathematically, her momentum strategy implementation couldn't be simpler. She adds the one-month, three-month, six-month, and 12-month returns to generate a momentum score. The method overweighs the most recent data by design.
Her newsletter sports an impressive record as documented by Mark Hulbert. Her mutual funds score less impressively. The difference is the usual suspect of theory versus practical application.
The strategy tends to overweigh hot sectors to the detriment of broad diversification. Trading frequency is high and escalates operational costs. The flagship fund, FUNDX, has done well over the very long term, but has underperformed its benchmark over the most recent three year and five year measurement periods.
I admire Janet Brown. She is honest and dedicated to her method; she is a true believer. Her presentations are full of useful charts. Here is a Link to one of her sales slideshows. It is a product pitch so I do not recommend all its slides. Please go to slide 32 for a nice visual summary of annual equity returns:
This graphic illustration format captures the variability of annual market returns much more forcefully than the mere repeating of dry average and standard deviation statistics.
I am not entirely a disbeliever in the existence of a momentum, particularly since others believe it and I think its important to take into account investor behavior.
On the other hand, I have been using DAL (Janet Brown's firm) to manage my company's pension account for over 15 years now, and my sense is that that their outcome has not been extraordinary but rather has been fairly representative of what any other advisor would obtain with the same or similar asset allocation.
Reply to @tigerman3: Thanks for weighing in with some first-hand experience. I can't say I am surprised. I am probably the biggest proponent for momentum trading/investing than anyone here. Unlike say a Janet Brown and her firm, I am not burdened with tens or hundreds of millions of dollars or more (I wish) to trade/invest and I switch/trade, increase/decrease my positions at a more rapid rate. I realize conventional wisdom says too much trading is poison to one's account but works for me. In fact, were it not for fund trading I can guarantee you this senior citizen would be working as a bagboy at his local grocer trying to supplement his meager social security benefits.
As an impending retiree, not that there's anything wrong with geriatric bagboys, do you (1) have a particular interval for realignment of your funds, (2) have a favored, reliable site for selecting the best-performing recent funds for the intervals? Perhaps this is asking for too much simplicity, but I have read that the momentum approach works, if one has a longer time to await results.
Reply to @STB65: I simply check the Morningstar rankings YTD for various fund categories. Then I make sure the momentum is still there for the past few weeks, month, etc. My way is not suitable for most as I am too active. I won't hang around a fund that is underperforming or has declined X amount of percent from any recent high. Plus, I may exit partially one day and then ramp right back up another. I prefer funds that are in tight rising persistent upward channels with as little volatility as possible. That pattern allows for heavier exposure and smaller drawdowns. As an aside, doesn't work well at all for individual equities. But that is a story for another time.
Comments
Hiyield007 (it sounds funny saying Hi Hiyield007),
NoLoad FundX
Mona
Academic research has demonstrated that momentum works in the investment arena for the near-term, hardly ever exceeding two years. Janet Brown has integrated that observation into her newsletter service and eventually into a series of mutual funds for over 30 years.
She is a tireless advocate for her product and is usually accessible at Money Show presentations.
Mathematically, her momentum strategy implementation couldn't be simpler. She adds the one-month, three-month, six-month, and 12-month returns to generate a momentum score. The method overweighs the most recent data by design.
Her newsletter sports an impressive record as documented by Mark Hulbert. Her mutual funds score less impressively. The difference is the usual suspect of theory versus practical application.
The strategy tends to overweigh hot sectors to the detriment of broad diversification. Trading frequency is high and escalates operational costs. The flagship fund, FUNDX, has done well over the very long term, but has underperformed its benchmark over the most recent three year and five year measurement periods.
I admire Janet Brown. She is honest and dedicated to her method; she is a true believer. Her presentations are full of useful charts. Here is a Link to one of her sales slideshows. It is a product pitch so I do not recommend all its slides. Please go to slide 32 for a nice visual summary of annual equity returns:
http://www.slideserve.com/Sophia/dal-investment-company-noload-fundx-fundx-upgrader-funds-janet-brown-1216474
This graphic illustration format captures the variability of annual market returns much more forcefully than the mere repeating of dry average and standard deviation statistics.
Enjoy.
Best Regards.
On the other hand, I have been using DAL (Janet Brown's firm) to manage my company's pension account for over 15 years now, and my sense is that that their outcome has not been extraordinary but rather has been fairly representative of what any other advisor would obtain with the same or similar asset allocation.