Reporting from the lecture given by Yann Cordier on the 10th March 2015, who had kindly torn himself away from his interesting job at Axa Investment Managers in Paris, something of a ‘back to the future’ theme emerged.
The main thrust of his focus was the relative strength of different sectors of the stock market. Not to be confused with the Relative Strength Index used by technical analysts (RSI), his technique looks at relative outperformance of one security against another one; the ratio between the two compares winners with losers. This sort of thing has been used for a very long time by stockbrokers when comparing a share to the performance of the index it is included in.
Talking to an old hand and stockbroker over drinks after the talk – which I encourage all of you to join a very collegiate atmosphere with free drinks – she alerted me to the fact that this was very much at the core to stock picking when she first entered the professional work place. So important when working with equities because the universe to choose from is, if not quite infinite, well then, huge. As an aside, it’s even more scary to think that there are as many if not more funds to choose from as there are companies to invest in.
For confirmation Yann also uses the RSI (standard 14 period), when it crosses through the 50 level, to reinforce his view as to which sector is leading or lagging; a sort of Relative Strength squared you might call it. Interestingly he believes the Dow Transportation Averages is the forerunner for US stocks generally (his focus last week was US markets), and also uses the ADX and DMI lines, depending on market conditions.
He sees a top-down approach as being ex ante, bottom-up ex post, and Relative Strength the bridge between these two. Do watch the video which, as always, is in the members section of www.sta-uk.org, to see his favourite sectors right now.