NEW YORK ( ETF Expert) -- Recently, in "What Apple Can Teach ETF Investors About Performance Chasing," I addressed a familiar market phenomenon. Specifically, the larger the momentum-based price appreciation, the more pronounced the fall from grace.
There is also a tendency for the opposite to hold true. In fact, the essence of value-based investing is to acquire massively beaten-down shares of "good companies" and allow for the inevitable recovery of sanity.
Right now, though, most do not care as much about the dominant theme that transfixes markets at a given point in time. Few non-professional investors care whether it is the greed of performance-chasing that is succeeding or the "buy fear" approach that value-oriented money managers use to profit. Most just want to know what works today.
I provided a glimpse of the probable answer in the aforementioned column. I wrote:
Assuming the government gets its act together (enough so that there are no more cliffs/crises/showdowns in 2013), pay extra close attention to the best-performing sectors. If they are the same groups (e.g., biotech, "new tech," small-cap growth, etc.), you'll know that the investment community returned to momentum-based performance chasing. In contrast, if the hottest areas struggle in spite of a debt agreement, a rotation into "risk-sort-of-on" assets might be transpiring.The market activity following a proposal to raise the debt ceiling for six weeks -- a proposition that is meant to buy time for a larger and more substantive agreement on both the budget as well as borrowing limitations -- demonstrated that momentum-based investing is still the most popular. Specifically, the previous five days witnessed an exodus from many of the biggest price appreciators of 2013:
|The Biggest Winners In 2013 Had Been Getting Slammed The Hardest...|
|State Street Biotech (XBI)||-12.4%|
|PowerShares NASDAQ Internet (PNQI)||-7.2%|
|Global X Social Media (SOCL)||-7.1%|
|PowerShares Small Cap Technical (DWAS)||-6.2%|
|Guggenheim Global Solar (TAN)||-5.1%|
|S&P 500 SPDR Trust (SPY)||-2.1%|
|The Biggest Winners In 2013 Bounced Back The Most|
|1st Half of Trading (10/10)|
|State Street Biotech (XBI)||4.3%|
|PowerShares NASDAQ Internet (PNQI)||3.2%|
|Global X Social Media (SOCL)||3.5%|
|PowerShares Small Cap Technical (DWAS)||3.1%|
|Guggenheim Global Solar (TAN)||5.4%|
|S&P 500 SPDR Trust (SPY)||1.6%|