By Murray Coleman
INVESTOR’S BUSINESS DAILY profiled our firm today.
With the market stalling out in the past few
weeks, Tom Lydon built up cash.
Before then, the president of Global Trends
Investments had 86% of his clients’ assets in stock exchange traded funds. He
pared that to 64%.
"If one of our holdings drops below its
200-day moving average or 8% off its most recent high," said the Newport
Beach, Calif.-based adviser, "that triggers our sell discipline."
Such a focus on preserving capital has worked
for the money manager in good times and bad. This year through April Lydon’s
all-ETF portfolio was up 8.6% net of fees vs. the S&P 500’s 5% return. Over
the past three years, Lydon’s portfolio gained an average annual 18.1% a year
vs. S&P 500’s 12.7%. In the past five years his portfolio rose 4.1% a year
vs. the S&P 500’s 1%.
"The Nasdaq is below its 200-day moving
averages for the first time in awhile," said Lydon. "But very few
individual ETF investors have a sell discipline they’re ready to implement. And
that’s a big mistake."
In recent weeks, Global Trends sold its
positions in iShares MSCI Japan (EWJ), iShares MSCI Austria (EWO) and iShares Goldman Sachs Semiconductor (IGW)
Goldman Sachs Semiconductor.
In foreign ETFs, Lydon still held iShares MSCI Switzerland (EWL) and iShares Global Healthcare (IXJ).
"Switzerland and Austria really
benefit from a weaker U.S. dollar," he said. "We’re also closely
watching the Switzerland ETF. It’s getting near its sell point."
In U.S. ETFs, his main holdings are iShares
S&P MidCap 400 Growth (IJK) and iShares
Russell 2000 Index (IWM).
"The domestic positions we have are
mostly small- and mid-caps," he said. IShares S&P MidCap 400 and
Russell 2000 bounced off their 200-day lines this week.
"We’ve been out of U.S.
large caps for three years," he said. "Everyone’s been talking about
a sector rotation up. But that hasn’t happened yet." Lydon uses a combination of fundamental and
technical analysis. He looks at macro trends to find promising sectors.
Assessing The Trend
Lydon doesn’t try to predict trends. He uses
technical factors to tell him what the market is doing at any point in time.
"The fundamentals tell you where the strength of the market lies," he
said. "From there, we do a technical overlay. That helps us to
specifically identify what asset classes, industry groups or regions we should
allocate money into."
Lydon started his career at Fidelity
Investments in the early 1980s. In the mid-1980s, he joined a West Coast-based
adviser group, Fabian Financial. In 1996, he branched off on his own to advise
high net-worth and institutional investors.
Six years ago, Lydon saw the mutual fund
industry under increasing pressure to stay long in positions.
"As advisers, we felt a need for more
flexibility," said Lydon. "And we strongly believed that our clients
deserved as much freedom as possible. So ETFs have been the perfect solution
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.