ETF Core Strategies
Aim: To trend-trade general equity ETFs so as to ride rallies and buck busts in the Australian share market.
MarketTiming is not in the forecasting business. Instead we use a demonstrated market timing model to gauge when the Australian share market is buoyant (a ‘Buy’ signal) and when it’s sinking (a ‘Sell’ signal).
However, the following observation by one of Australia’s leading market commentators is worth noting. If the share market for the next few years moves sideways in a WWW formation then trading an index fund using a reliable market timing model should be more profitable and less stressful than buying and holding an indexed portfolio as it gyrates between highs and lows.
"Equities don't always keep going up. Through history there have been long periods when they have traded within a range.
For example between 1968 and 1979, the All Ordinaries traded from 300 to 450, apart from an ugly period in 1974 when it fell to 130. The Australian share market ended the 70s at the same level as it began that decade, so investors got nothing but dividends for ten years, and they were squeezed as well.
We will probably have a few years of range-trading now – but hopefully not a decade. That just depends on events. If there are more bank collapses, or sovereign defaults, or if China's recovery runs out of steam, the market could easily return to the March lows sometime between now and 2012, or beyond.
But within those dark ten years in the 70s there were several very lucrative rallies of 50 per cent and more. Investors with their wits about them could make money, but those who were simply index investors over the long term did not."
Source: Alan Kohler, Eureka Newsletter – Week in Review, 9 May 2009.
A possible guide to current conditions is what happened on average to general share price indices in the last 19 bear markets globally. What stands out in the next chart is how volatile markets are in these circumstances even when a share investor is widely diversified. That’s all the more reason to protect hard earned savings by using a reliable timing service to ride the market when it’s rising, but to step aside from it when it’s falling. Only rodeo contestants with scant regard for risk hold onto broncos when they are bucking.