Beyond the fact that I trade these, I find that monitoring the top-ranked funds can be helpful in determining whether the market is defensive or risk-on. Note the shift to gold and the shift away from utilities and consumer staples…
Top Five Funds on September 19, 2012
1. FSTCX (Telecommunications)
2. FSAGX (Gold)
3. FBMPX (Multimedia)
4. FBIOX (Biotechnology)
5. FWRLX (Wireless)
Top Five Funds Exactly One Month Ago
1. FIUIX (Telecom and Utilities)
2. FSUTX (Utilities)
3. FSTCX (Telecommunications)
4. FBMPX (Multimedia)
5. FDFAX (Consumer Staples)
Wood, sorry if my comments (on the previous post) weren’t clear. I completely agree with your statements about momentum working for decades. But, in July 1932, long-short momentum strategies crashed, losing something like 20 years worth of gains in a month. The same thing happened in March 2009. Since you are long only, the effects were much less severe, but I’m pretty sure there’s still an effect. I believe your filters are vital for maximizing a long only momentum strategy’s returns to overcome these infrequent periods. I think the selection of things like look-back length and ranking are less important than getting the exposure correct. Perhaps I should have said I’m devoting the majority of my momentum strategy time to getting exposure right, as opposed to things like look-back time. Of course, if the market doesn’t have another big drop, then I’m working on something that isn’t necessary.