One of the most frustrating—and unsuccessful—quests in 2016 has been the Search for a Successful Strategy.
Sorry about the large caps, but it has assumed an almost mythical status among traders who cannot abide simply going to cash.
The first thing investors noticed—this started at the end of December—is that traders are taking down exposure across the board. For the most part, investing by regions has produced the same losses:
Major indexes 2016
S&P 500 down 8.0%
EAFE down 8.0%
All-World down 8.5%
All-World ex-U.S down 9.1%
See? Everything is down 8 to 9 percent. Good luck there looking for something that outperforms.
Value versus growth was another big debate at the end of 2015. For the most part, growth stocks (largely tech, internet, healthcare) have outperformed value (largely energy, autos, industrials, financials) for the past several years.
Many predicted that would change in 2016. So far, they have been wrong as well:
Value vs. Growth 2016
Value down 7.8%
Growth down 7.9%
value: energy, autos, industrials, financials
growth: tech, internet, healthcare,
One of the only strategies I have seen that works (or at least produces less losses) is sell high volatility, buy low volatility.
High vs. low volatility
High Volatility down 16.8%
Low Volatility down 4.7%
High volatility are stocks that have a high sensitivity to market movements (typically energy, tech, solar, biotech); low volatility (typically consumer staples and utilities) do not.
You can see this in the performance of several high volatility names:
High Volatility 2016
Freeport-McMoran: down 42%
Wynn Resorts: down 14%
Cameron Int'l: down 7%
First Solar: down 6.8%
And the better performance of stocks that are low volatility:
Low volatility 2016
Campbell Soup: up 3.3%
Clorox: up 0.6%
Kellogg: down 1.4%
Coke: down 2.4%
P&G: down 4.2%
There's an old saw on Wall Street, that there's two types of selling: intellectual and non-intellectual. Intellectual selling is where you don't like a stock because you don't like the earnings prospects, or the economic prospects. Non-intellectual selling is when you are being forced to sell when you don't want to.
We seem to have entered the non-intellectual part of the selloff.