Our current three positions are TMF, SSO, and IFN. We made no position changes this week. The Stops & Targets model faired a little better because the TMF position came off a little in the basic model, though the basic model maintained a strong overall lead over the lower volatility version on the year.
This Week’s Strategy Lesson: Aerial Survey of Our Investible Universe
2014 is quickly coming to a close and we thought it would be a good idea to go through our three models and see what observations or trends we might pick up on based on how the ETFs are stacking up by TSI scores.
Sector
The sectors model was dominated in 2014 by Healthcare, Technology / Semiconductors, and Real Estate. When the U.S. markets have been trending, those have tended to consistently be the leaders. Transportation has certainly been another bright spot and we had an excellent trade in energy in the first half of the year.
However, currently our sector laggards are populated by commodity and energy related ETFs. For the bottom pickers, these sectors are rife with opportunity however, some forecasts have cheap energy prices well past the midway point of 2015 so a quick bounce-back may or may not be in the cards.
No one knows what the future holds, but there is a lot of reason to believe the recent trends in healthcare might continue with the affordable care act continuing to drive more premiums into that sector and gains in technology and phone/device utilization should help semiconductors and major technology plays remain on top of the rankings.
Country
The hard truth of it is there are very few bright spots in the world. The chart above colorizes the countries with ETFs we monitor based on their TSI score (higher positive TSI scores marked in brighter green colors and lower negative TSI scores in darker red colors).
The U.S. markets, both equities and treasuries, continue to be the clear leaders. No doubt we have benefitted from a from a situation where a small initial advantage in our markets has continued to widen as international investors pull money out of depressed local markets and park it in U.S. equities and bonds.
October and November saw inflows reach their highest levels in over a year with the flow of funds primarily coming from European and some Asian markets.
India and China are a couple of the major exceptions. India has had a tremendous year on the back of major governmental change and possible reforms that could reenergize growth. China has struggled to stay in a positive trend, but it is up nicely on the year.
The paucity of investment choices has led to the country fund making few position changes this year and being more heavily weighted in U.S. based positions.
Global Macro
We see a similar trend in the Global Macro as we saw in the Country model. U.S. based holdings are doing well, meanwhile commodities and regional ETFs have really sold off recently. The commodity sell-off is being driven by declining global demand and plentiful supply. The strong U.S. dollar hasn’t helped U.S. investors looking for opportunities abroad and some specialized areas.
The Global Macro model has been primarily holding QQQs and treasuries when markets are trending up with some short unsuccessful holdings in coffee and volatility recently. Given how “oversold” some of these markets and commodities are, there could be some significant opportunities in these areas going into 2015.
The Current Condition of the Model
For the country model, we are in TMF, SSO, and IFN. The broader markets had a very active week, looking bad going into the FED meeting and coming out looking like everything was good again. All is not good, however, as low energy prices are starting to cause some political issues in oil revenue dependent areas and much of the world continues to fight off deflation and recessionary pressures.
Stay tuned to daily updates for any position changes.
Here is a summary of the weekly performance of all the ETFs that the strategy monitors:
Best wishes for your trading,
James Kimball
Trader & Analyst
MarketGauge