Whenever the market behaves in a tumultuous way to the downside, as it did last week, I like to look back to see if there were any mutual funds or ETFs that bucked the trend. I’m not talking about the obvious bear market funds, but others that may have held up well and may have been part of your portfolio.
This is only a short-term view of market activity and certainly not meant for you to rush out and buy those that survived the week on a positive note. But you may consider them and do further research to see if an investment in them is merited.
Higher interest rates were the culprit for last week’s 3-day slide, which means that interest rate sensitive funds/ETS fared the worst. This is confirmed in our momentum tables; here are the worst of the bunch out of my data base containing 1,504 funds/ETFs:
1. UTPIX, Utilities, -7.80%
2. PMPIX, Precious Metals, -7.05%
3. XLU, Utilities, -5.30
4. EWZ, Latin America, -5.28%
5. FSUTX, Utilities, -5.27%
The top five, which held up best, are:
1. CH, Country Fund, +3.04%
2. TIFQX, Technology, +2.75%
3. TF, Pacific Asia, +1.44
4. EWT, Pacific Asia, +1.22%
5. CNZLX, Pacific Asia, +1.17%
As a general comparison, the S&P; 500 lost -1.87% for the week while Gold dropped -3.38%. That means that even a traditional safe haven such as Gold failed to hold up again just like it failed during the meltdown of February 27.
While it is important to diversify your holdings, it is not a guarantee that your portfolio will withstand a severe market slide. The sell offs during May/June 06, at the end of February 07 and now last week, are proof that many markets work very much in tandem and to own a “zig” holding when the market “zags” is rare indeed.
That’s why I continue to believe that a clearly defined entry and exit discipline is the best way to deal with market uncertainties and keep your portfolio from freefalling.
Comments 8
Ulli – How do you think fund/ETF holders who have only just bought into the market place their stops? I’m thinking of some ETF’s we bought last week which promptly lost 5% in 2 days. Given that I feel that the market will start trending upwards again in the next few weeks, I’m tempted to forgo the 10% stop for these late additions and buy more at that point instead of crystalizing a loss. I have 7% trailing stops on all my profitable ETF’s.
Jane,
The stop loss discipline should always be applied no matter when you buy your funds/ETFs. Sure, one reason is to lock in profits, but the other one is to avoid investing at the top of the market.
As in your case, it means that at times you may very well get stopped out within a few days after your purchase—especially at these levels. That would be a whip-saw, and we all to have to accept the fact that it will happen occasionally.
While I don’t like it either, it certainly is preferable to watching the value of your portfolio slowly go down the drain if the markets head towards bear territory.
Ulli…
A good example of this is my recent experience with REIT’s. I’ve owned them in one form or another since 1997 and had experienced terrific “paper” gains in recent years.
In February I invested some new money in VNQ and it promptly went south, all the way down to and beyond my sell/stop. So, I sold all my accumulated REIT holdings, in March, including the roughly 7% I had lost with the most recent buy. But in the longer term I was selling a down trending asset class with a tidy profit gained over the years, even though I had to swallow the recent hit.
And the further losses in this asset class since March have borne out the benefits of TTI investing, eliminating still further reductions to the portfolio.
G.H.
G.H.
Glad to hear you got out of VNQ. The stop loss I had for my clients’ VNQ holdings was triggered back in March, and we liquidated all on 3/6/07 for a profit.
Ulli…
Ulli,
How will we know if the TTI crosses the long-term tend line before you post your weekly no load fund/ETF tracker update? With todays triple digit drop, most of my funds are closing in on their 7% stops.
Thank you,
Craig
Craig,
Most likely your 7% sell stop discipline will have you out of the market before the TTI crosses to the downside. However, when it does, I will make an announcement on this blog.
Ulli…
I think Craig’s question raises an excellent point.
I’m curious Ulli, in your experience have you encountered a downturn in which sells were triggered only by the trend line (TTI) but without any positions reaching sell stops?
In this current environment with a fast rising market it’s understandable that we would be seeing alot of sell stops hit before the market drops below long term trend lines are pierced. But I wonder if in a more methodical market if the conditions would warrant a TTI “selloff.”
G.H.
G.H.
I don’t remember if we ever had a “more methodical” market as you put it. To answer your question, the last time the TTI signaled a ‘Sell’, without the use of sell stops, was in 2000. The reason is that prior to 2000, there was no need to use individual sell stop points. I strictly used the crossing of the trend line as my guide.
The violent up and down swings of 2000 mandated another precautionary measure to protect portfolios from “giving back” too much during market reversals.
While the TTIs are a great directional market indicator for a ‘Buy’, they require quite a market reversal before they signal a ‘Sell.’ The result is that we have to give back too much in profits, which is why I use the sell stops in addition to the crossing of the trend line.
Ulli…