Does Trend Following Work

Richard Widows wrote in article in the Street.com about trend following strategies in mutual funds. Basically, he claims that they don't work. For his proof, he listed a group of funds with high returns in 2007 and poor returns this year. I do agree that chasing performance doesn't always work especially with sector, single country & regional funds but I don't think that should keep us away from trend following models that do work. I have back tested many trend and momentum models in stocks, funds and commodities, and if done correctly, they can be quite rewarding.

Widow's simple strategy was picking the fund with the highest return. If he had narrowed down his choices to diversified domestic and international funds, I'd take a guess that the returns of those funds would have been fairly OK in relation to the broad market. If you wanted the big returns, the portfolio would need to trade much more frequently, say quarterly or every couple of months (depending on the fund's short term redemption fees). Momentum changes throughout the year and I have found out that by following the momentum through the year you can piggy back on its returns and still perform better than the broad market indexes.

A Couple Noteworhy Links

Are International Companies the Way to Go?

3X Leveraged International ETFs.

Yikes. Largest 6 Day Dollar Decline.

I'm Back

Been extremely busy over the last two weeks with classes & work projects, but I'm back with a few links to check out:

Looks Like Portable Alpha Didn't Work Out As Expected

Market Folly Continues Its Listing of Hedge Fund Holdings

Total Bailout Costs From The Big Picture

What is the real Hedge Fund Index

Are we in a recession?

IndexIQ Launches a Hedge Fund Clone SMA. Still waiting on their ETFs...

Hedge Fund Performance in November. Compare against The Absolute Investor returns.

Computer Models Are Holding Up

New Investing Tools

A Fallen Legend

New ProFunds Hit the Market

ProFunds has launched 12 new leveraged mutual funds, including commodities and currencies (Euro & Yen).

A New Fund to Keep My Eye on

The Dover Long Short Sector Fund (DLSAX). High turnover and 1.75% expense ratio but it seems to be holding up with a basically flat return for the year.

We are creating a couple more model portfolios for our subscribers next year, one of which is a Long Short Sector Rotation Model. I wonder how our model will perform compared to this fund. At the very least it could provide a benchmark for the new model.

We are also looking into creating a Long Short Country Rotation Model and a Commodity Trading Model (CTA), similar to a manged futures hedge fund.

Hedged Mutual Funds

Richard Widows at The Street details a few mutual funds with hedge fund strategies. We have our eye on all of them. Hopefully, more and more of these funds will become available as long as there are good managers running the ship.

Another Bailout. Who's Next

Oy...Here we go again. But at least the markets up two days in a row.

Wondering if Citigroup got the automaker's money?

Unfortunately, we don't know if these bailouts will even work.