The Wall Street Journal just wrote an article saying that more mutual fund managers are using market timing and stock timing tools to “time” the market. They are doing this to act more nimbly and get into and out of stocks that are moving up and down.
Mutual funds have a problem with this technique that doesn’t affect small investors. Mutual funds have to move much larger sums of money around and therefore can affect the market with their purchases or can incur higher management costs.
Some of these funds have beaten the market in recent years. Ivy Asset
Strategy, for example, gained an annual 14.9% in the five years ending
Nov. 10, compared with less than 1% for the Standard & Poor’s
Fund companies say investors spooked by the recent market turmoil
are demanding more-flexible products. Many investors have been
frustrated “with investment products that were not able to react to the
environment that we just went through,” says Joel Sauber, head of U.S.
products at Legg Mason. The firm’s new Legg Mason Permal Tactical
Allocation Fund can stash up to 40% in cash.
A study from New York University’s Stern School of Business suggests
market-timing can work for some mutual-fund managers. The best
stock-pickers during economic expansions also show some market-timing
ability in recessions, the study found.
So if the “big guys” are using market timing to improve their performance, why aren’t you?