All distributions and dividends are assumed to be reinvested, which has no meaningful effect on the rates and percentages shown. For comparison, the same period returns of the Vanguard Index 500 Fund (symbol VFINX), whose performance is close to the S&P 500 index, are also shown.
It should not be assumed that trades in the future following the Fidelity
Select Switching System will be profitable or will equal the performance of
the trades shown below.
Note: Buy prices marked by a * have been adjusted for a distribution by the fund between the purchase and sale dates. This distribution is assumed to be reinvested in the fund, which has no meaningful effect on the percent changes or overall rates of return shown. Fidelity normally makes any distributions for the Selects on the first two Fridays in April and on the first three Fridays in December. Sell or Index Buy Fund Sale/Exchange Buy Recent Percent 500 Date Purchased Date Exchange to: Price Price Change Change 1/7/08 Energy Service 2/11/08 Home Finance 100.24 87.03 -13.2% -5.3% 1/14/08 Medical Equipment 3/10/08 Computers 25.69 22.98 -10.5% -9.8% 1/21/08 Money Market 3/17/08 Natural Gas 1.00 1.00 0.58% -2.2% (Interest earned) 1/28/08 Constr & Housing 3/31/08 Home Finance 34.43 33.68 -2.2% -1.9% 2/4/08 Constr & Housing 3/31/08 Home Finance 34.85 33.68 -3.4% -4.2% 2/11/08 Home Finance 3/17/08 Natural Gas 27.47 22.63 -17.6% -4.4% 2/19/08 Natural Gas 5/5/08 Networking 47.01* 52.62 11.9% 4.7% 2/25/08 Natural Gas 5/5/08 Networking 48.72* 52.62 8.0% 2.9% 3/3/08 Energy Service 7/28/08 Air Transport 88.70* 99.70 12.4% -6.6% 3/10/08 Computers 4/28/08 Energy Service 39.23 43.47 10.8% 9.9% 3/17/08 Natural Gas 5/5/08 Networking 45.12* 52.62 16.6% 10.4% 3/24/08 Home Finance 4/28/08 Energy Service 27.22* 26.03 -4.4% 3.6% 3/31/08 Home Finance 5/12/08 Networking 24.87* 25.18 1.3% 8.1% 4/7/08 Constr & Housing 5/12/08 Networking 34.74* 34.74 0.0% 4.2% 4/14/08 Energy Service 7/28/08 Air Transport 97.17 99.70 2.6% -6.6% 4/21/08 Energy Service 7/28/08 Air Transport 106.24 99.70 -6.2% -10.6% 4/28/08 Energy Service 7/28/08 Air Transport 102.98 99.70 -3.2% -11.1% 5/5/08 Networking 6/30/08 Energy Service 2.17 2.11 -2.8% -8.7% 5/12/08 Networking 6/30/08 Energy Service 2.20 2.11 -4.1% -10.1% 5/19/08 Networking 6/30/08 Energy Service 2.29 2.11 -7.9% -4.5% 5/27/08 Natural Resources 7/21/08 Biotechnology 43.33 41.06 -5.2% -8.8% 6/2/08 Paper & Forest 7/14/08 Energy Service 28.75 23.96 -16.7% -9.4% 6/9/08 Biotechnology 9/2/08 Natural Gas 64.95 71.00 9.3% -5.7% 6/16/08 Chemicals 7/28/08 Air Transport 95.11 82.77 -13.0% -9.1% 6/23/08 Chemicals 7/28/08 Air Transport 95.07 82.77 -12.9% -6.2% 6/30/08 Energy Service 8/4/08 Banking 117.42 94.35 -19.6% -2.3% 7/7/08 Energy Service 8/11/08 Medical Delivery 108.12 92.33 -14.6% 4.5% 7/14/08 Biotechnology 9/2/08 Natural Gas 67.50 71.00 5.2% 1.7% 7/21/08 Biotechnology 9/2/08 Natural Gas 70.88 71.00 0.2% 0.8% 7/28/08 Air Transport 9/29/08 Banking 26.74 25.05 -6.3% -20.8% 8/4/08 Banking 11/17/08 Telecomm 19.00 14.88 -21.7% -31.4% 8/11/08 Medical Delivery 9/22/08 Banking 41.92 38.23 -8.8% -7.3% 8/18/08 Air Transport 9/29/08 Banking 30.49 25.05 -17.8% -13.3% 8/25/08 Retailing 10/6/08 Money Market 38.06 31.86 -16.3% -16.4% 9/2/08 Natural Gas 10/6/08 Money Market 40.24 25.85 -35.8% -17.2% 9/8/08 Home Finance 10/20/08 Money Market 16.23 12.56 -22.6% -20.8% 9/15/08 Banking 11/17/08 Telecomm 18.93 14.88 -21.4% -28.4% 9/22/08 Banking 11/17/08 Telecomm 20.34 14.88 -26.8% -29.3% 9/29/08 Banking 11/17/08 Telecomm 16.86 14.88 -11.7% -22.8% 10/6/08 Money Market 12/8/08 Constr & Housing 1.00 1.00 0.43% -13.4% (Interest earned) 10/13/08 Money Market 12/8/08 Constr & Housing 1.00 1.00 0.38% -8.9% (Interest earned) 10/20/08 Money Market 12/8/08 Constr & Housing 1.00 1.00 0.34% 7.7% (Interest earned) 10/27/08 Money Market 12/8/08 Constr & Housing 1.00 1.00 0.29% -3.5% (Interest earned) 11/3/08 Air Transport 12/29/08 Natural Gas 27.49 24.61 -10.5% -9.5% 11/10/08 Natural Gas 12/15/08 Constr & Housing 23.64 19.43 -17.8% -5.4% 11/17/08 Telecomm 1/26/09 Money Market 23.78* 26.58 11.8% -1.1% 11/24/08 Money Market 1/5/09 Air Transport 1.00 1.00 0.29% 6.7% (Interest earned) 12/1/08 Utilities Gr 1/5/09 Air Transport 38.41* 41.55 8.2% 11.3% 12/8/08 Constr & Housing 1/26/09 Money Market 24.81* 22.08 -11.0% -7.7% 12/15/08 Constr & Housing 1/26/09 Money Market 23.10* 22.08 -4.4% -3.2% 12/22/08 Medical Delivery 3/2/09 Money Market 28.21 23.54 -16.6% -19.0% 12/29/08 Natural Gas 3/2/09 Money Market 19.26 17.16 -10.9% -18.9% Money Market fund assumed to earn interest at a 3.75% annual rate in January-March, 2.50% in October-December.In order to keep this complicated page from becoming even more so, the trade results shown do NOT include the use of "stop-loss" tactics, which is my recommended strategy. These are discussed in several other pages on this site, and there are some examples that illustrate the potential beneficial effects of using stop-losses. The more volatile sector funds such as those in high technology, Biotechnology, and Energy Service are more likely to get stopped out. In many such cases, the fund likely would have been held less than 30 days. If so, it would have been hit with Fidelity's 0.75% short-term selling penalty for Select funds.
Since it is unlikely that any investor would act on all of the weekly signals shown above and on the linked pages for prior years, here is an illustration of one use of the weekly trade list tables.
Starting on 12/31/07, the closest Monday to the start of 2008, if one had invested into a single Select fund and followed the system, these would be the trades: Buy Fund Sale/Exchange Percent Index 500 Date Purchased Date Exchange to: Change Change 12/31/07 Energy 2/4/08 Constr & Housing -8.2% -5.5% 2/4/08 Constr & Housing 3/31/08 Home Finance -3.4% -4.2% 3/31/08 Home Finance 5/12/08 Networking 1.3% 8.1% 5/12/08 Networking 6/30/08 Energy Service -4.1% -10.1% 6/30/08 Energy Service 8/4/08 Banking -19.6% -2.3% 8/4/08 Banking 11/17/08 Telecomm -21.7% -31.4% 11/17/08 Telecomm Still held as of 12/29/08 6.7% 2.6% -------------------------------------------------------------------- Total return as of 1/12/09 -40.4% -38.4% accounting for maximum 2% annual management fee -42.4% The calculation for the total return for the track is: (0.918)(0.966)(1.013)(0.959)(0.804)(0.783)(1.067) - 1 expressed as a percent.Here is a table showing what have happened if one had followed the method illustrated above starting on the closest "Monday" to the beginning of each year since 1996. The returns shown are those for the following year (52 weeks). "Selects System" shows the results of trading the Select funds, which have been reduced by the maximum 2% annual management fee. Those returns do not reflect Fidelity's load (removed in September 2003) applied to initial purchases of Select funds, which ranged from 0% to 3% depending on the amount of the purchase. The links in the right column show the weekly trades for each year and the computations of the values in the table. Returns for the Vanguard Index 500 fund are included to provide a market condition context.
Year Selects System Index 500 Weekly Trade Lists & Computations 1996 31.2% 21.9% 1996 Weekly Trade List 1997 33.1% 28.6% 1997 Weekly Trade List 1998 17.1% 27.7% 1998 Weekly Trade List 1999 56.4% 19.6% 1999 Weekly Trade List 2000 32.0% -10.8% 2000 Weekly Trade List 2001 -20.5% - 9.5% 2001 Weekly Trade List 2002 -23.8% -21.3% 2002 Weekly Trade List 2003 18.4% 28.2% 2003 Weekly Trade List 2004 14.7% 8.8% 2004 Weekly Trade List 2005 12.5% 7.4% 2005 Weekly Trade List 2006 12.8% 13.6% 2006 Weekly Trade List 2007 11.2% 6.9% 2007 Weekly Trade List 2008 -42.4% -38.4% ------ ------ Average(96-08) 11.8% 6.4%
No claim is made that the system will perform in the future as it has in the past or as illustrated above. Also, there can be no assurances that the system will produce a profit in the future; it is possible that the system will produce losses.
December 31, 2008:
We have now wrapped up the 52 week tracking "year" for 2008. It was a grim one indeed. Due to the Energy Service trade in the summer, which lost much more than the broad market, the system trades lost a little more than the index fund. I don't think anyone would have been pleased with either outcome. As discussed below, the track shown does not employ any type of stop-loss or other risk control methods. I do that to keep things from getting too complex to display here. I use those types of tactics in my managed and personal accounts. All accounts that trade the Select funds were totally in money market funds since late June.
Although the last trade is still open, we can see how the track of Selects trades above did for the year. I expect that there will be 5-7 completed trades, and that is essentially the case as the seventh trade, while still open, is seven weeks along and still counting. That means the number of trades was at the high end, which is typical in poor markets as trades tend to last longer when they are making money. Only two of the seven have been profitable as the system fell victim to the virulent bear that developed. The two trades in the summer and early fall were terrible although the Telecommunications one "beat the market" by almost ten percentage points despite dropping over 20%.
It all goes to show that trading sector funds in poor markets is quite risky. That is why I advocate risk control tactics for both sector fund trading and how much exposure to have to all equities. In particular, I don't think any investor should have more than 20% of investible assets in sector funds, and most will want less, say around 10%.
December 8, 2008:
Select Money Market is signaled for sale this week. One reason for the five week minimum holding period is to avoid Fidelity's 0.75% charge if a Select fund is sold before being held for 30 days. The charge does not apply to the Money Market fund. However, the system treats that fund like all of the other Select funds because backtesting has shown it works better than having no minimum for that fund.
Unless one is extremely bullish (and I am not at all now since the graph of just about any index shows the market is still in a downtrend), following the system with regard to November 24 Money Market purchase is the better course of action. I should point out that my managed accounts that trade the Selects have been in Money Market, out of the market, since late June. That is because the trend down in stocks combined with increasing volatility makes trading sector funds too risky for me. Until the market starts trending up as indicated by one or more of the broad market timing models that I give the most credibility to, these accounts will remain on the sidelines.
November 5, 2008:
Stocks have bounced off of their October lows a couple of times now. The tables above do not include the over 300 point Dow rise on election day. The high volatility provides opportunities for exceptional profits trading sector funds and other instruments that are typically more volatile than the broad market. Unfortunately, the same volatility greatly increases risks and makes it much more difficult to get in and out close enough to the levels that will produce nice profits. In other words, although the profit potential may be high currently, the risks of substantial losses are even higher.
The system behind the trades shown above is not "fast" enough to take advantage of the sharp moves in both directions we have been seeing recently. That is reflected in the preponderance of double digit negatives (since stop loss tactics are not included in the table results) for trades that began in mid-August through late September before the money market fund moved to the top of the rankings. Because the system is not suited to such volatile market conditions, the best course of action is to either use a more appropriate method, which will entail its own risks, or just side on the sidelines in a money market fund until things calm down and "normal" market conditions return. The latter action is the one I am implementing in managed accounts that trade the Select funds.
The election of Obama is truly historic and inspirational. As he pointed out in Grant Park in his victory speech, it is another large step in fulfilling the dreams of the Founding Fathers (although many of them had slaves). Despite the longest campaign in our history, his "easy" task has been finished. The current economic conditions and financial crisis will present him with different and much harder to deal with challenges due to not having nearly the degree of control as he did with his supremely well organized campaign.
September 29, 2008:
The values shown above this week are for the end of the day that the Dow dropped almost 800 points. The severity of the drops in values of some of the sector funds is breaktaking. Keep in mind that the tables above show the raw system without any risk control measures such as stop losses. My managed accounts have been entirely in money market funds since the end of June. At that point, stocks were in a downtrend, and I judged that the risks of owning sector funds, which can be highly volatile in falling markets, was too great compared to the potential profits. Moving to the sidelines is the ultimate risk control measure. Until the current crisis seems to be resolved and the markets calm down, I will keep the accounts I manage that trade Select funds out of the market.
Given the nature of the current financial crisis, it is somewhat surprising to see Banking as the top ranked fund for the past three weeks. It is barely so this week with a return over the ranking period just slightly in the black. All the other sector funds are down over that period. That is despite a 17% drop from September 22 to September 29, which shows how volatile sector funds can be in down markets. It also shows that until last week, Fidelity's fund managers have done a very good job positioning the fund in the stronger banks and avoiding those whose stock prices have sunk nearly to zero. However, when things get really bad, as the old saying goes the police pick up the good girls with the bad ones.
August 18, 2008:
This commentary is more appropriate for August 4, but I was having a very nice time in Maine then. The terrible trade in Energy Service (ticker FSESX) that ended on 8/4 almost certainly means the track shown above will do far worse this year than the broad market as represented by the Vanguard Index 500 Fund. That trade began almost at the peak value of the fund. Given the high volatility of FSESX, whenever I trade it for real, I use an initial and trailing stop in the 10-12% range. That would have reduced the damage of the trade in the track and likely have resulted in a sale on 7/23 at 100.79. If one was monitoriing the energy sector closely on 7/22, it would have been reasonable to figure the stop trigger was going to be hit that day, and one might have decided to sell out then and received 105.52. (The large drop the next day illustrates the volatility quite dramatically.) Either sale would still have been bad enough. If one continued to use the system, the next trade would have been to buy Air Transportation on 7/28, and so far that trade is doing quite well, so the timing of stop and subsequent buy would have been quite favorable.
As remarked above, stops are not shown in the tables above for the sake of simplicity. Four other FSESX trades terminated on 7/28, and they would have done better using the stops described in the previous paragraph. The one in the track was not closed until a week later due to the five week minimum holding period in the basic trading method.
April 28, 2008:
This week two funds are signaled for sales or exchanges. This happens several times a year and results a "merger" of two of the theoretical "tracks" of trades. If an account owns two funds that were signaled for sales or exchanges, there are a couple of tactics that can be used. Assuming one wants to maintain the current level of diversification, exchanging both of the funds into the current top ranked fund would not be practical. Sometimes the second or third ranked fund is not highly correlated with the top ranked one, so the exchanges could be made into the top ranked fund and the second or third ranked one. I do not recommend going any lower. However, the top three funds this week are all in the energy sectors, so that idea is not practical. Instead, one of the funds to be sold can be exchanged into the top ranked fund, Energy Service this week, and the other one exchanged into a money market fund. When a fund not highly correlated with Energy Service rises to (near) the top of the rankings, the money market holdings can be put into that fund.
February 4, 2008:
It has been a tough first month and a couple of days for stocks in 2008. The first completed trade in the track shown above was a bad one both for its own loss and in comparison to the broad market. Although energy prices have been rising, the price of a barrel of oil has fallen off 10-15% from its high, and combined with fears of a recession in the near future, the Energy fund fell more than the index fund. Since sector funds, particularly those in the energy and technology sectors, are usually more volatile than the broad market, what we saw can't be considered to be shocking. In strong down markets, sector fund trading still can make some good profits, but the risks are relatively high. One way to manage the risk is to reduce exposure or move entirely into cash when other models or indicators are pointing to the likelihood of falling stock prices.
January was a down month. When that happens, the January Barometer you may have heard about does not really tell us a whole lot about what the rest of the year has in store for stocks. Since 1940, the rest of the year following a down January has been up slightly more than half the time, and the average change of the S&P 500 in those periods has been slightly negative. That is in contrast to the eleven months following Januarys with rising stock prices. Those have seen gains over 80% of the time with a healthy average increase in the S&P well above 10% for the balance of the year. Based on that indicator, the rest of 2008 does not figure to be great, but the January Barometer does not say that it is time to get out of stocks. Any decision to do that would have to be based on other indicators
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