Dorsey, Wright Client Sentiment Survey - 2/11/11

February 11, 2011

Here we have the next round of the Dorsey, Wright Sentiment Survey, the first third-party sentiment poll.

As you know, when individuals self-report, they are always taller and more beautiful than when outside observers report their perceptions! Instead of asking individual investors to self-report whether they are bullish or bearish, we’d like financial advisors to weigh in and report on the actual behavior of clients. It’s two simple questions and will take no more than 20 seconds of your time. We’ll construct indicators from the data and report the results regularly on our blog–but we need your help to get a large statistical sample!

Click here to take Dorsey, Wright’s Client Sentiment Survey.

Contribute to the greater good! It’s painless, we promise.

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Alternative Indexing Strategies

February 11, 2011

Yet another article, this time in the Wall Street Journal, that discusses equal weighting and fundamental weighting—but has no mention of relative strength weighting. In a previous post, I discussed how relative strength weighting may well outperform both of these alternative methods over a long period of time. The new Wall Street Journal article does mention conditions under which each weighting style should do well:

A market-cap-weighted index fund is likely to beat an alternatively weighted index fund when large-cap or growth stocks are in favor. An equal-weight index fund should win when smaller stocks are hot, or certain sectors outperform. And a fundamentally weighted index fund should shine when smaller-cap and especially value stocks are in vogue.

Here’s the nice thing about relative strength weighting: it doesn’t matter if large cap or small cap stocks are in favor, nor does it matter whether growth or value is at the forefront. Relative strength is agnostic about such matters—it will simply allocate to where the strength is. Recent strength has been in mid and small caps, so equal weight and fundamental indexes have looked good. At some point, strength will switch to large cap names and those indexing styles may flounder. Relative strength indexes will simply adapt to owning large cap names. Something to keep in mind.

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Sector and Capitalization Performance

February 11, 2011

The chart below shows performance of US sectors and capitalizations over the trailing 12, 6, and 1 month(s). Performance updated through 2/10/2011.

 

 

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