Systematic Relative Strength

So far this quarter we haven’t had a really big spread day between the laggards and leaders. That is until today. The low ranked RS stocks did much better than the highly ranked RS stocks today. The broad market was up dramatically today, but all of the good performance came from the low ranked stocks. Looking at the performance by RS decile you can see a steady progression in the performance as the RS ranks get worse.

You can see from the data that any decile that outperformed the universe average was at least in the bottom half of the ranks. It is very rare to find an RS strategy that even holds stocks ranked in the bottom half, let alone buys them. On a day like today, the more levered you are to the high RS stocks, the worse you performed.

One of the few constants in my investment career has been that New York City was the hub of the financial world. That may be in the process of changing. Luigi Zingales, a professor at the University of Chicago’s Booth School of Business, recently wrote a commentary that suggests a major change is underway. Like the Italian city-states, Amsterdam, or London of the past, New York may be in the process of forfeiting the world’s financial crown. Dr. Zingales points out a wide variety of factors that may contribute to this change. They include tax policy, brain drain, and poor regulation.

I have witnessed NYC being wheeled into the morgue in the past, but it has always managed to walk out. Will it be different this time? I don’t know, but I will be watching the relative strength of foreign markets for a clue.