It's not like putting a new set of radials on the family roadster, but the
T.O. Richardson Sector Rotation
fund tries to fit its sector holdings to the market terrain ahead.
The fund, launched Dec. 31 by the Farmington, Conn.-based management firm, will use momentum characteristics to focus on hot sectors.
"We're trying to select and invest in the top five to 10 industry sectors and stay with them as long as they're positive," says Sam Bailey, chief executive of T.O. Richardson, which manages $250 million in assets for private clients. "It's sort of like physics. Stocks that are rising tend to continue to rise and stocks that are falling will continue to fall."
That philosophy is great, of course, if you can time it right. But Bailey says his fund, the first mutual fund offered by the firm, will not engage in market-timing.
"Market-timing has to do with guessing what's going to happen in the future," Bailey says. "In my mind, this has more to do with momentum." The fund also aims to stay fully invested.
The fund will use a computer model to pick the top-performing sectors, based on momentum characteristics, of major indices like the
, Bailey says. It will then choose the top five to 10 stocks within each sector for its portfolio. Currently, the fund is focusing on the developing communications, biotechnology, computers, leisure and telecommunications sectors.
That kind of screening puts Bailey's fund squarely in the "quant" corner of investing. These kinds of funds run computer searches for stocks that fit a particular model.
For instance, Steve Esielonis, a fund manager for Boston-based
, selects stocks for his $65.7 million
Growth and Income fund by analyzing how different sectors and industries have reacted to interest rate changes.
Last year, Esielonis' models apparently worked, as the fund returned 29.5%, edging out the 28.7% return of the S&P 500 with dividends reinvested daily.
"There's little emotion," Esielonis says with steely certainty about his methods. "The big difference between fundamentally driven and quantitatively driven funds is the emotional analysis. That's not to say one is better than the other, but we like to think we're perhaps a lot more scientific."
The no-load Sector Rotation fund is available for a minimum investment of $5,000 and carries a redemption fee of 1.25% if you divest within the first year. The fund's expense ratio is capped at 1.95%, Bailey says.
Stock Funds on Track for Record Inflows
Bullish investors threw $10 billion into stock funds in the first five trading days of 1999, according to estimates by
Liquidity Trim Tabs
. U.S. funds received $7 billion and global funds $3 billion. That translates into a $40 billion monthly rate for all equity funds, which would be a record, says the firm. The current monthly record of $30 billion was set in January 1997.
Trim Tabs approximates fund flows for the industry using a computer model and a sampling of actual flows from 20% of the universe of funds.
"It's huge," says Charles Biderman, president of the tracking firm. "Last year we saw a decline of $70 billion in equity fund inflows," says Biderman. "That money went into money markets," he adds. "So, we might be seeing some of the money investors put in money markets when the market was volatile."
The performance in stock mutual funds reflected investor sentiment, returning an average of 2.6% in the same five trading days, according to
Call It the Yahoo! Effect
Internet stocks remain sizzling, particularly
, which gained 45% during the first week of 1999 (and another 20.1% on Monday).
December, the $57.7 million
Amerindo Technology fund, managed by Alberto Vilar, concentrated 43% of its assets in Yahoo! at the end of September, according to Lipper.
While Vilar wouldn't confirm his stake in Yahoo!, his fund's stunning 38.3% gain during the first week of 1999 looked suspiciously similar to that of his favorite highflying stock.