Fund Families

There are seven momentum ranking tables that I posted every week. I started this site in 2004 with 2 families of mutual funds, SSPP and SELECT. Later in 2005, I added the ranking table of ETF due to the popularity of exchange traded funds. SSPP is made up of 31 Fidelity mutual funds in my company's 401k plan at that time,and SELECT has 40 funds from Fidelity's SELECT sector fund group. ETF table was formed by 41 indexed funds which investor can buy and sell from any discount brokage house. I did not have a specific criteria for including a fund into the ranking table other than pick a few funds in different investment styles, differenct industrial and regional sectors. In doing so, I may overlook a few good performance funds. However, the intention is to capture the different sector or global regional growth trends at the different phases of economy cycle and trade the funds accordingly. As long as the funds in the family can cover as much as the whole economy sectors with enough volatility, we should be able to profit from them with above market average return. In 2007, my company changed the makeup of the funds in our 401k plan and reduced the number of Fidelity mutual funds. The reason I used only the Fidelity mutual funds in SSPP was that their price can be tracked publicly so that I can automate the ranking generation. In the new plan, a lot of fund prices can only be quoted through the plan and can not be found elsewhere. To overcome this change, I developed the rankings for all the funds in the new 401k plan, downloaded their price every week manually and posted them as nSSPP while keeping the old ranking table. In addition to the change of SSPP, the popularity of exchange traded funds grew exponentially and more funds were offered by different large fund companies. After some studies, I added the sETF and iETF ranking tables to the weekly postings. sETF contains 40 sector index funds and iETF contains 30 international index funds. In general, funds in ETF, sETF and iETF have higher volatily and subjected to higher risk. This year I started to post the rankings of the funds in my company's Health Saving Account (HSA) plan. There are only 15 funds in the plan and most them charge more than 5 % of transaction fee for every purchase. although the fund company will waive the transaction fee if you make the trade through the plan. If you are not in the HSA plan, I do not recommend you to trade these funds because of their high loads.

Momentum Rankings

Funds are ranked according to their average price momentum indices (AMI). AMI is a smoothed form of current price momentum index (CMI) which shows the fund's price momentum of the current week. The CMI of each fund in this case is the percentage difference of its weekly closing price to its trend line, and the AMI is the moving average of CMI over a period of time. These calculations are based on proprietary formuli and performed every week after closing of the market. The funds at the top of rankings are identified as funds with the strongest growth potential in the intermediate term. The basic concept is to stay with the leaders as the market condition changes. In general, selling decisions are much more difficult to make than buying decisions. Hence, trading strategies can be developed based on the the rankings.

Trading Strategies

There are several ways of using fund rankings to develop investment strategies. One of the approaches I adopted and applied in the model trading logs is to hold one top rank fund at a time and switch to another top rank fund when its rank drops below 7th rank in the family or if its AMI drops below 0. It is important not to hold a fund with negative AMI. A fund is in an intermediate up trend when its AMI climbs above zero, and is in a down trend when its AMI slides down below zero. In a severe bear market, all the AMIs in the fund family will drop below zero. By selling funds with negative AMI, one can avoid the inevitable severe bear market in the future.

By changing the number of funds to hold or using different trading thresholds, strategies with different diversification levels or aggressiveness can be developed. For example, a multi-fund strategy that gives better diversification can hold 2 or 3 top ranked funds at a time and a strategy with a more aggressive threshold (20% than 30%) will result in shorter holding time and more frequent trading. Here are a couple of examples:

  • Strategy A: Buy the number 1 ranked fund, hold it, and check fund rankings every week. When its rank drops below 5 or its AMI drops below 0, sell it and buy the number 1 fund of that week (of course with positive AMI.) If none of the fund has positive AMI, buy the money market fund or equivalent.
  • Strategy B: Divide your portfolio into 3 equal parts. Buy the first top 3 ranked funds, hold them, and check fund rankings every week. When one of the fund drops below 10th rank or its AMI drops below 0, sell it and buy the number 1 fund of that week (again, do not buy funds with negative AMI.) If you already owned the number 1 fund, buy the number 2, and if you already owned the number 1 and number 2 funds , buy the number 3 fund such that you will always hold 3 different funds in your portfolio (except for money market fund as warranted by market conditions.)
  • Strategy C: I found this on a for subscription web site. It holds 5 equal part of top 5 ranked funds. Replace the fund when its AMI ranking drops out of the top five, such that you always hold the top 5 ranked funds.
  • Strategy D+: I found these from another for subscription site. They are more complicated. You can find the detail in http://www.etfwealthbuilder.com/sample.html.

For people who just want to follow my model portfolio, here are a few ways to start with:

  1. Jump right in 100% (higher risk),
  2. Patiently wait for the next position change (may take a long time), or
  3. Invest the same amount of money every week to the fund I hold until the next position change.
Once a strategy is developed, the key to success is to apply it objectively, consistently and not to stray from it. Discussions are welcomed, let me know if you have any good ideas.


Note on Holding Restriction and Redemption Fees

To curb excessive trading activities, Fidelity monitors accounts which hold a fund in less a month in our 401k plan and will suspend trading priviliges if too much trading activities occur. For some funds, there is also a 0.75% redemption fee if they were held for less than one month or in some instances, 3 months. Since the rankings are based on weekly price changes, I do not expect frequent tradings. To avoid suspension, my strategy in the trading log for SSPP imposes a one month minimum holding period and pay no attention to the redemption fee.