where to invest now?

Sam_J12

I am shortly going to be fully invested in Japan, through an ETF and a couple of active funds that have been performing well. I think Japan is likely to do well in the near future due to the being in the middle of a monetary stimulus plan, a decent government and the additional government spending in the run up to the 2020 Olympics. The biggest indicator for investment is that the Japanese indexes have outperformed the US and Europe by a large margin in the last 12 months, a very powerful indicator of continued outperformance in the near future. Furthermore, the index underwent a more significant correction in August than the rest of the developed world and has yet to recover in the same way. The main risk is that Japan is more exposed to a slowdown in China than the rest of the developed world.

Kendall80

Sam_J12 wrote: »

I am shortly going to be fully invested in Japan, through an ETF and a couple of active funds that have been performing well. I think Japan is likely to do well in the near future due to the being in the middle of a monetary stimulus plan, a decent government and the additional government spending in the run up to the 2020 Olympics. The biggest indicator for investment is that the Japanese indexes have outperformed the US and Europe by a large margin in the last 12 months, a very powerful indicator of continued outperformance in the near future. Furthermore, the index underwent a more significant correction in August than the rest of the developed world and has yet to recover in the same way. The main risk is that Japan is more exposed to a slowdown in China than the rest of the developed world.

Thats a load of eggs in that basket. Brave or.... I have a 12% Japan allocation currently (hedged back to sterling) and wouldn't feel comfortable taking it any higher.

Sam_J12

Kendall80 wrote: »

Thats a load of eggs in that basket. Brave or.... I have a 12% Japan allocation currently (hedged back to sterling) and wouldn't feel comfortable taking it any higher.

It is part of a rule based strategy I have adopted that effectively diversifies across time rather than permanently across asset classes. If low-risk assets such as short term government bonds have performed better than the markets I am interested in over the last 12 months, I keep everything in bonds. Otherwise, I invest fully in the market that has performed best over the last 12 month, and reevaluate on a monthly basis. It is based on Gary Antonacci's Dual Momentum ideas.

Kendall80

Sam_J12 wrote: »

It is part of a rule based strategy I have adopted that effectively diversifies across time rather than permanently across asset classes. If low-risk assets such as short term government bonds have performed better than the markets I am interested in over the last 12 months, I keep everything in bonds. Otherwise, I invest fully in the market that has performed best over the last 12 month, and reevaluate on a monthly basis. It is based on Gary Antonacci's Dual Momentum ideas.

That wasn't made clear in your previous post. Momentum investing is certainly an intriguing concept. I looked into it recently and recall a graph which showed its relative outperformance when compared to certain other investing strategies. There were however also many years of underperformance. The contrarian approach would be to invest in the worst performing region/sector of the previous 12 months. It would be interesting to see a graphic comparing said two approaches.

Sam_J12

Kendall80 wrote: »

That wasn't made clear in your previous post. Momentum investing is certainly an intriguing concept. I looked into it recently and recall a graph which showed its relative outperformance when compared to certain other investing strategies. There were however also many years of underperformance. The contrarian approach would be to invest in the worst performing region/sector of the previous 12 months. It would be interesting to see a graphic comparing said two approaches.

I think there is a lot of evidence that it works - there have been many back tests of various momentum strategies across lots of different markets and sectors and it repeatedly and consistently beats the market. Along with value investing, it is the only strategy I know that can beat the market, and is considerably easier to implement. The big difference between value and momentum is that people know why value investing works, but people don't really understand the reasons behind momentum and put it down to fairly nebulous behavioral reasons. That is slightly worrying, as the strategy relies on what has worked in the past (for decades or hundreds of years based on back tests) carrying on working in the future. Without an understanding of the mechanism there are questions over this.

In the recent bullmarket, Antonacci's strategy has underperformed the S&P 500 but if you look before the previous bear market, it has massively outperformed it.

Still, I think as a strategy it is almost certain to give a better long term return than a 60/40 equity/bond type strategy, with less volatility and lower draw downs.

Chickereeeee

If there is any strategy that works even reasonably reliably, it would be adopted by the big players, and huge volumes of money would be soon following it.

With a contrarian stategy, this would tend to reduce volatility. Not sure what would happen with a momentum strategy....!

C

Sam_J12

Chickereeeee wrote: »

If there is any strategy that works even reasonably reliably, it would be adopted by the big players, and huge volumes of money would be soon following it.

With a contrarian stategy, this would tend to reduce volatility. Not sure what would happen with a momentum strategy....!

C

Momentum is adopted by fund managers as a viable investment strategy. The idea is that because it is based on behavioural patterns that have remained for a prolonged period of time, it is likely to remain a viable strategy. I think the jury is out on that really.

Linton

Sam_J12 wrote: »

....

Still, I think as a strategy it is almost certain to give a better long term return than a 60/40 equity/bond type strategy, with less volatility and lower draw downs.

If you were after long term returns would you use a 60/40 equity/bond allocation? It doesnt seem a fair comparison with the momentum based strategy which has the potential to be very volatile in the short term.

If you arent going to diversify your current assets perhaps it would be prudent to diversify your strategies. There are plenty of others to choose from.

Sam_J12

Linton wrote: »

If you were after long term returns would you use a 60/40 equity/bond allocation? It doesnt seem a fair comparison with the momentum based strategy which has the potential to be very volatile in the short term.

If you arent going to diversify your current assets perhaps it would be prudent to diversify your strategies. There are plenty of others to choose from.

The 60/40 equity/bond strategy is popular and uses also bonds to reduce volatility so I think the comparison is valid.

I agree with diversifying strategies is a good idea - but I currently have most of my net worth in cash (buying a house in the not too distant future) so am comfortable having 100% of my non-cash exposure in a single asset class and market.

The OP asked where he thought a good place to put his cash was, and I think Japan is looking pretty good right now based on momentum! But maybe not in a few months...

AlanP_2

Sam_J12 wrote: »

It is part of a rule based strategy I have adopted that effectively diversifies across time rather than permanently across asset classes. If low-risk assets such as short term government bonds have performed better than the markets I am interested in over the last 12 months, I keep everything in bonds. Otherwise, I invest fully in the market that has performed best over the last 12 month, and reevaluate on a monthly basis. It is based on Gary Antonacci's Dual Momentum ideas.

I haven't looked into momentum much at all as I prefer a Passive approach but I must be missing something here as I can't see how this works to your advantage.

At the moment you are 100% Japan because that has done well over last 12 months but you re-evaluate on a monthly basis.

I guess that means you could be 100% in Europe for November and 100% UK for December and so on.

That sounds like a rule to avoid what may go up in the future and a way of being invested in what went up most over the last 12 months, along with only being in that market for 30/31 days at times before you change.

Like I said I must be missing something.