Going With the Flow: Smart Ways to Use Market Momentum to Boost Returns
Emerging-market stocks have lost a fistful of money since early May. But maybe more important, they've also lost momentum.
I am a firm believer in the proposition that the financial markets are awfully tough to beat. Yet there's no denying momentum offers a money-making opportunity. In recent years, you could have notched dazzling gains by loading up on highflying investments like emerging markets, gold shares and real estate, riding them for a while and then hopping off. Problem is, these handsome gains often quickly turn to losses, as emerging-market investors can attest. Their mistake: They tried to play the momentum game -- but they were way too late to the party.
? Taking off. According to academic research, you can notch impressive one-year returns by buying stocks that have posted healthy gains over the prior three to 12 months. "The market tends to underreact to good news," explains Narasimhan Jegadeesh, a finance professor at Emory University in Atlanta.
Suppose a company posts surprisingly robust earnings. Because it takes time for this good news to be fully reflected in the company's share price, the stock might outperform the market for months on end. Eventually, these price gains may beget further price gains, as performance-chasing investors pile into the stock.
Momentum investors can rack up hefty trading costs. Nonetheless, many professional money managers use momentum in picking stocks. One strategy: Look for shares with both good short-term momentum and also attractive valuations, as measured by market yardsticks like price-to-book value and dividend yield. That way, you might catch a beaten-down "value" stock in the early stages of its recovery. "You want to buy something that's done well for six months or a year," says Robert Krail, a founding principal at hedge-fund manager AQR Capital Management in Greenwich, Conn. "If you're buying something that's done well over three or five years, you're likely buying into something that's overvalued."
? Jumping aboard. That seems to have been the mistake made by emerging-market investors. These markets held up well during 2001 and 2002's global stock-market rout and then posted sparkling returns in the three years that followed.
Emerging-market fund shareholders, however, were fairly restrained in their buying -- until last year. In 2005, the funds scored average investment gains of 32%. But fund assets grew twice as fast, soaring 65%, as performance-hungry investors jumped aboard.
These fund shareholders were rewarded with a spurt of good performance in early 2006, as the funds leapt an average 25% through May 10, when many major stock markets peaked. But since then, it's been mostly downhill, with the funds plunging 15%.
Emerging markets could quickly revive and the recent carnage may soon be forgotten. But without a rapid recovery, we will be left with an oft-told story: Investors chased the market's hottest performers -- and ended up getting burned.
If you want to avoid that fate while still profiting from market momentum, you need to be a lot more disciplined about your buying and selling. The way to do that is with rebalancing.
? Staying balanced. The idea is to set target percentages for your various mutual-fund holdings and then to tweak your portfolio every so often, to bring your funds back into line with your target percentages.
To avoid hefty tax bills, any trading is best done inside a retirement account. If you are dealing with a taxable account, you might rebalance by directing dividends and fresh savings to underweighted funds.
How does momentum fit into all this? Say you have earmarked 5% of your stock portfolio for emerging markets. Thereafter, you should look to lighten up when your holdings get above 5% and aim to buy when they fall below. But don't rush to buy and sell, because there's a chance market momentum may carry prices to an extreme. "Buying emerging markets on a 15% or 20% drop might seem like a good idea," says William Bernstein, an investment adviser in North Bend, Ore. "But investors should remember that, for these stocks, this sort of decline is just a baby step. I'd be cautious."
So how often should you rebalance? With major holdings like U.S. stocks, foreign stocks and high-quality U.S. bonds, consider rebalancing whenever your fund holdings get five percentage points above or below your targets, suggests Larry Swedroe, research director at Buckingham Asset Management in St. Louis. For instance, if you have 40% earmarked for bonds, you would rebalance if your bonds got above 45% or fell below 35%.
Meanwhile, for smaller positions in sectors like emerging markets and real-estate investment trusts, Mr. Swedroe recommends a 25% trigger. So if you have 5% targeted for emerging-market stocks, you'd rebalance if emerging markets balloon above 6.25% or fall below 3.75%. "You definitely want to be rebalancing, but you don't want to be doing it too often," Mr. Swedroe says. "You want to let stocks go up a bit before you sell, but not so much that you lose control of risk."
利用市场走势提高收益的妙方
自5月初以来，新兴市场的股票下跌了不少。但更重要的或许是，它们也已失去了上涨动力。
双语阅读
? Smart Ways To Use Market Momentum To Boost Returns 我一直坚信这样的说法：在金融市场中取胜是一件极其困难的事情。但这并不是否认市场趋势能够提供赚钱机会。最近几年，如果你积极投资于新兴市场、黄金类股或房地产等领域，持有一段时间后再出手，你或许现在已经获得了丰厚的收益。但问题是：正如新兴市场上的投资者那样，这些可观的利润可能很快又变成了亏损。这些人的错误在于：他们试图利用市场趋势来赚钱，但是出手太晚了。
－－业绩飙升的股票。根据调查，如果你购买在3-12个月之前收益良好的股票，那么你常常能获得丰厚的一年期回报。亚特兰大艾默瑞大学(Emory University)金融学教授纳拉辛汉?叶加迪斯(Narasimhan Jegadeesh)说，市场往往对利好消息反应得不够充分。
假设一家公司发布了惊人的丰厚收益。由于公司股票价格需要一些时间才能充分体现这一好消息，因而该股连续数月的表现都可能强于大盘。股价上升最终会推动价格进一步升高，因为追逐业绩表现的投资者会大量买入该股。
趋势型投资者可能带来交易成本的提高。不过，很多职业基金经理都利用趋势来挑选股票。其中一个策略是：寻找那种短期走势较好并且估值具有吸引力的股票，后者可以通过价格与帐面价值比以及股息率等市场尺度来衡量。这样，你或许会找到一只正从低谷开始反弹的“价值型”股票。“你可以买在过去半年或一年表现较好的股票，”对冲基金经理公司AQR Capital Management创始人之一罗伯特?克赖尔(Robert Krail)说。“如果你买了在过去三至五年表现较好的股票，很有可能它的价值已经被高估。”
－－追捧表现好的股票。这好像是新兴市场投资者们所犯的错误。新兴市场在2001年及2002年全球股票市场低迷时期表现良好，并且在之后的三年中产生了惊人的回报。
但是，新兴市场基金的股东在去年之前一直控制他们买入的股票数量。2005年，这些基金的平均投资收益率为32%。但是基金资产飙升65%，其增长速度是基金收益的两倍。这是因为渴求良好表现股票的投资者都纷纷来追捧这些股票。
这些基金的股东在2006年初因股票价格飞涨而获得了良好回报。在全球主要股票市场于5月10日达到历史高点的时候，这些基金平均上涨25%。但是在那之后，股市多数时间在走下坡路，基金下挫了15%。
新兴市场可能会很快复苏，新近的损失很快就会被遗忘。但是如果市场没有快速恢复，我们就会遭遇那个老生常谈的经历：投资者追逐市场上最炙手可热的股票，最后却因此而遭受重创。
如果你想在利用市场走势获利的同时避开这种命运，那么你必须在买入和卖出方面更加遵守一定的规则。方法就是重新达到平衡。
──保持平衡。基本理念是为你的共同基金中各种成分的持有量设定一个目标，然后经常调整，使它们和设定的目标百分比保持一致。
为了避开高额的税收，任何交易最好都在退休金帐户下进行。如果你正使用一个需纳税帐户，或许可以将股息以及新存款直接转至比例不足的基金帐户下来实现新的平衡。
那么，市场走势如何和这些内容结合起来呢？比如，你决定自己的股票投资组合中应有5%的新兴市场类股。那么，此类股票超过5%时，你就要减持；低于5%时就买入。但是不要急于买卖，因为市场走势有时候会把价格推向极端。“在新兴市场类股下跌15%至20%时购入是个不错的主意，”North Bend投资顾问威廉姆?伯恩斯坦(William Bernstein)说。“但是投资者应该牢记，对于有些股票来说，这个跌幅可能只是第一步。应该谨慎些。”
那么，重新调整达到平衡的间隔应该是多久呢？Buckingham Asset Management的研究部主管拉里?斯韦德罗(Larry Swedroe)建议，如果你主要持有美国股票、外国股票以及优质美国债券的话，每当你所持基金比预定目标高或低五个百分点的时候，就应该考虑调整了。比如，你的投资组合中债券的目标比例是40%，那么当债券比例高于45%或低于35%的时候，你就应该重新调整了。
斯韦德罗还建议，少量持有新兴市场以及房地产投资信托类投资产品时，应该以25%作为调整限度。如果你的新兴市场股票的目标比例是5%，当它的比例上升至6.25%以上或跌至3.75%以下，你就应该进行调整了。“你肯定想重新达到平衡状态，但也不用做得太频繁，”斯韦德罗说。“卖出之前，可以让股票再升一点。但是不能太多，以免失去风险控制。”
Jonathan Clements
