This strategy selects top bond funds to invest based on their past price momentum ranking.
This strategy upgrades the portfolios by buying the top performing funds when performance leadership changes. The original strategy is applied mainly to a class of diversified stock funds. However, such a scheme could be applied to fixed income bond funds. Refer to FundX Upgrading for more detailed writeup on the rules.
A recent research paper titled 'Hot Hands' in Bond Funds confirmed that such strategies could indeed earn statistically significant abnormal return.
This strategy is also known as "fund upgrading" by FundX creators.
Model Portfolios
- Applies this strategy to a list of no load multi-sector bond funds.
- Applies this strategy to a list of no load high yield bond funds. It has been shown that high yield bond funds are highly trendy. Momentum strategies such as this one should be well fit.
- Applies this strategy to a list of diversified bond ETFs or diversified bond index funds.
- Applies this strategy to a list of Morningstar's manager of the year of fixed income funds.
Note: to guard against the dramatic loss during a downturn, we use CASH as the alternative for any of the top funds chosen if that fund FundX score is lower than the CASH's score in the past one year period. Such a technique has been proved to be an effective way to shelter a portfolio from big loss.
Similar funds and ideas:
- FundX Upgrade Funds are a family of mutual funds employing the basic FundX strategy. FundX has also published one of the top performing investment newsletters for more than 15 years. See FundX website for more information.
- Strategy Momentum Based on FundX Scoring: a FundX style scoring for momentum calculation.
- Strategy FundX Upgrading is FundX on stock and sector funds.
Research and Newsletters
- S&P Equity Research Sector Rotation Strategy
- Mark Hulbert: Due respect Top sector rotation letters and their market-beating portfolios. June 27, 2008. MarketWatch.com
See Also
- Janet Brown: About FundX: http://www.fundx.com/AboutFundX.aspx or FUNDX, RELAX, INCMX in http://fundxfunds.com/
- CXO Advisory: The Noload FundX Mutual Fund Momentum Approach.
- Carhart, Mark, M. "On Persistence in Mutual Fund Performance", Journal of Finance, Vol. 52 No. 1, March 1997.
- Derwall, Jeroen and Huij, Joop, 'Hot Hands' in Bond Funds (April 16, 2007). ERIM Research Paper Series. Available at SSRN: http://ssrn.com/abstract=791465.