‘Jump In,’ Fund Newsletters Tell Market Timers (but Be Sure to Look First)
For momentum-minded mutual fund investors, now is the time to jump back into the stock market. At least that’s what several prominent “timing” newsletters are saying.
To be sure, this advice is meant only for market timers: investors who try to capitalize on market trends and momentum--and avoid steep drops--by frequently jumping into and out of stocks. Many financial planners believe such a strategy is counterproductive because it racks up unnecessary trading costs and can leave investors on the sidelines during run-ups.
Still, the newsletters’ shift in advice is another sign that investor optimism is growing.
In the last week--as stocks have rebounded sharply following the Federal Reserve Board’s second cut in short-term interest rates--mutual fund newsletters that had recently recommended momentum-driven investors yank all their money out of the market have done an about-face. Among the newsletters now saying that investors should be 100% in stock funds are the Chartist in Seal Beach and Fundadvice.com of Seattle.
And while Huntington Beach-based Fabian Investment Resources hasn’t changed its 100% cash recommendation for its general audience, it issued new “buy” signals Oct. 16 and then again Friday for more aggressive investors who try to time the market through sector funds.
“Sector services usually give ‘buy’ signals first,” said Doug Fabian, president of Fabian Investment Resources. He notes that his overall recommendation may change soon “if we can get some more follow-through in the small-cap and broader market.”
Fabian’s firm offers two sector fund strategies: one for Fidelity investors and another for those who prefer Invesco funds. Since the first week of August, he recommended both groups stay completely on the sidelines.
He now recommends Fidelity sector fund investors put 60% of their money to work via Fidelity’s regional bank, retail and construction-and-housing funds--split evenly--with the other 40% remaining in cash. Invesco investors are urged to invest 25% each into its financial services, health-care and leisure funds, with the rest in cash.
“The sectors are really momentum plays,” Fabian said. “The Fed cut rallied the market, which rallied the sectors.”
Dan Sullivan, who edits the Chartist, also relies on momentum--in addition to interest rate trends and movements in the major market indexes--to make his recommendations. He said the 9.2% gain in the Standard & Poor’s 500 index during the five days ended Oct. 15 was the sixth-largest since 1970.
“That was the best five-day run since 1982,” said Sullivan, who advised his clients to pull out of stock funds July 24, before issuing a new buy recommendation on Tuesday. “That should give you an idea of how strong the momentum was.”
According to his research, in the 12 months that followed the 10 biggest five-day moves for the S&P; since 1970, stocks gained 26.3% on average.
The Chartist, like many timing newsletters, has advised readers to jump into and out of the market several times in the last year.
Fundadvice.com was the most recent newsletter to issue such a bullish recommendation for its market-timing investors (the newsletter offers separate, unrelated advice to conservative investors who want to stick with the buy-and-hold strategy). As recently as Oct. 2, the newsletter, formerly known as the Fund Exchange, said timers should have only 25% of their money invested in stock funds. That recommendation grew to 50% on Monday, 75% on Tuesday and 100% on Wednesday.
Paul Merriman, the newsletter’s editor, acknowledges that “all of our systems are trend-following. Any time you get in, you could be getting in near the top. And any time you get out, it could be at the bottom.”
