Systematic Relative Strength

As of the close, 4/30/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.

With four months of 2015 now in the books, a quick glance at YTD performance of a broad range of asset classes reveals some important changes taking place. Clearly, Emerging Markets have come alive after having produced negative returns in both 2013 and 2014. So far in 2015, Emerging Markets are top of the heap.

Source: Yahoo! Finance. The performance above is based on total returns, inclusive of dividends but does not include all transaction costs. Period 1/1/15 – 4/29/15.

Obviously, one way to get exposure to Emerging Markets is through a cap-weighted ETF like EEM or VWO. However, over the last 6 years, momentum-weighted exposure has been more profitable.

Source: Yahoo! Finance. The performance above is based on total returns, inclusive of dividends but does not include all transaction costs. Period 1/1/15 – 4/29/15.

Even though all three of these ETFs are investing in Emerging Markets stocks, the differences in investment universe and weighting scheme can make a big difference in performance. While VWO and EEM are weighted by capitalization, PIE is investing in the top 100 Momentum stocks from a universe of approximately 1,000 Emerging Markets stocks. Each quarter, PIE is reconstituted with the 100 stocks that meet our PnF relative strength criteria, reflecting both their near-term and longer-term favorable relative strength characteristics. It’s also important to note that once we identify those 100 Momentum stocks, the index is weighted by Momentum so the strongest names get the most weight.

Top holdings and weights of the PowerShares DWA Emerging Markets Momentum ETF (PIE) are shown below:

Source: PowerShares. As of 4/30/15.

As with any relative strength strategy, one of the keys to good performance over time is having sufficient dispersion in the investment universe and as shown below, there has been plenty of dispersion in Emerging Markets! The chart below shows the trailing 12 month performance for the 1,000 Emerging Market stocks from which we select our stocks for PIE. The best stock was up 389% over this period of time and the worst stock was down a mere 82%.

Source: Dorsey Wright, FactSet. Period 4/28/14 – 4/28/15.

I would argue that an ETF like PIE deserves a strategic position in an asset allocation, but for those advisors allocating tactically, I think there are plenty of reasons to give some consideration to taking a new position in PIE right now.

Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. The post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this document. It is for the general information of readers of this blog (www.systematicrelativestrength.com) This document does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this document, clients should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Dorsey Wright is the index provider for PIE.

The chart below measures the percentage of high relative strength stocks that are trading above their 50-day moving average (universe of mid and large cap stocks.) As of 4/29/15.

The 10-day moving average of this indicator is 59% and the one-day reading has fallen to 44%. Dips in this indicator have often provided good opportunities to add money to relative strength strategies.

This example is presented for illustrative purposes only and does not represent a past recommendation. The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

As of the close, 4/24/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.

As of the close, 4/23/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.

As of the close, 4/22/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.

Important insight from Mark Hulbert at MarketWatch:

Don’t give up on momentum stocks just because you worry the bull market may be nearing its end.

That’s because, contrary to popular belief, such stocks do not tend to be among the biggest losers when the market heads south. In fact, during bear markets, high-momentum stocks tend to do markedly better than those at the opposite end of the spectrum.

Momentum is typically measured over the trailing 12 months. So the stocks with the highest momentum are those with the best returns over the previous year, while those with the worst returns have the lowest momentum. A substantial body of academic research has documented that high-momentum stocks, on average, have significantly outperformed the market over the past century, while stocks with the least favorable momentum have markedly lagged.

Despite that strong academic support, however, many erstwhile followers of momentum strategies get particularly nervous when bear-market anxiety heats up. They worry that stocks with the highest momentum when the market is rising will be among the biggest losers when the market falls.

Some resort to a surfing analogy to express their concern: While a surfer rides high so long as his wave continues, he crashes when that wave comes to an end.

Compelling as this surfing analogy may be, however, it is misleading, according to Tobias Moskowitz, a principal at hedge fund firm AQR and a finance professor at the University of Chicago.

He told me that “while high-momentum stocks can be expected to lose during a bear market, historically, at least, they have not suffered significantly more than the overall market, and often fare better. Regardless, such stocks on average have fared better during bear markets than stocks with the worst trailing 12-month returns — those with the lowest momentum.”

“In fact,” he continued, “the times when high-momentum stocks fare worse than low-momentum stocks have come at the beginning of a new bull market — not at a bull market’s end or the beginning of a new bear market. Furthermore, it’s not that high-momentum stocks suffer at such times; their poor relative performance is caused by the sometimes exceptional gains of low-momentum stocks.”

As of the close, 4/21/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.

BlackRock takes note of the pick up in investor flows to international markets in recent months:

Our latest analysis leads us to believe that many investors are applying a spring cleaning approach to their portfolios as well, rebalancing as the first quarter ended. The latest exchange traded fund (ETF) flows data show the industry just closed a record opening quarter. More specifically, investors are putting their money to work in markets outside the U.S. Of the $97.2 billion of net new assets raised in the first quarter, over $70 billion went into equity funds with international exposure.

Surely, much of this renewed interest in international equity markets has to do with the fact that both Developed International Markets and Emerging Markets are outperforming the U.S. so for in 2015:

Source: Dorsey Wright. Updated through 4/23/15. The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

One way to consider getting exposure to international equity markets is through our Systematic RS International SMA portfolio. This portfolio invests in 30-40 ADRs. We buy stocks out of the top quartile of our relative strength ranks and sell when they fall out of the top half.

As of 3/31/15

Over the last 9 years, this SMA has outperformed its benchmark by 6.57% annually on a net basis.

To receive the fact sheet for this strategy, please e-mail [email protected].

The performance represented in this brochure is based on monthly performance of the Systematic Relative Strength International Model. Net performance shown is total return net of management fees for all Dorsey, Wright & Associates managed accounts, managed for each complete quarter for each objective, regardless of levels of fixed income and cash in each account. The advisory fees are described in Part II of the adviser’s Form ADV. The starting values on 3/31/2006 are assigned an arbitrary value of 100 and statement portfolios are revalued on a trade date basis on the last day of each quarter. All returns since inception of actual Accounts are compared against the MSCI EAFE Total Return Index. The MSCI EAFE Total Return Index is a stock market index that is designed to measure the equity market performance of developed markets outside of the United States and Canada and is maintained by MSCI Barra. A list of all holdings over the past 12 months is available upon request. The performance information is based on data supplied by the Manager or from statistical services, reports, or other sources which the Manager believes are reliable. There are risks inherent in international investments, which may make such investments unsuitable for certain clients. These include, for example, economic, political, currency exchange, rate fluctuations, and limited availability of information on international securities. Past performance does not guarantee future results. In all securities trading, there is a potential for loss as well as profit. It should not be assumed that recommendations made in the future will be profitable or will equal the performance as shown. Investors should have long-term financial objectives when working with Dorsey, Wright & Associates.

The chart below is the spread between the relative strength leaders and relative strength laggards (universe of mid and large cap stocks). When the chart is rising, relative strength leaders are performing better than relative strength laggards. As of 4/20/15:

This example is presented for illustrative purposes only and does not represent a past recommendation. The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Investors cannot invest directly in an index. Indexes have no fees. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss.

As of the close, 4/20/15:

Source: Yahoo! Finance

See www.powershares.com, www.ftportfolios.com, and www.arrowshares.com for more information.

The performance above is based on pure price returns, not inclusive of dividends or all transaction costs. Past performance is not indicative of future results. Potential for profits is accompanied by possibility of loss. The relative strength strategy is NOT a guarantee. There may be times where all investments and strategies are unfavorable and depreciate in value. Nothing contained herein should be construed as an offer to sell or the solicitation of an offer to buy any security. This post does not attempt to examine all the facts and circumstances which may be relevant to any product or security mentioned herein. We are not soliciting any action based on this post. It is for the general information of readers of this blog. This post does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients. Before acting on any analysis, advice or recommendation in this post, investors should consider whether the security or strategy in question is suitable for their particular circumstances and, if necessary, seek professional advice. Dorsey Wright & Associates is the index provider for the above ETFs.