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Andrew T. Gillies is Director of Communications at the Center for Audit Quality, an affiliate of the American Institute of CPAs, in Washington, DC. Based in Washington since 2002, he has also worked in editorial and communications roles at the Investment Company Institute, the World Bank, Forbes, and Vault.com. His policy-themed writing has focused on aerospace and defense, energy and environment, transportation, and financial services.

Thursday, January 25, 2001

Stock Focus: It's The Industry, Stupid

NEW YORK - "Picking stocks is really about picking the right sectors," says James Floyd, co-portfolio manager of the Leuthold Select Industries Fund (assets: $7 million). This market-timing strategy is tricky, but Floyd and co-manager and company chairman Steve Leuthold have been successful so far.

From its inception last June, the fund's total returns were 31.4% through the end of the year. In contrast, S&P 500 lost 10.6%. As of year end 2000, Leuthold Weeden Capital Management had $177 million under management in three public funds and private portfolios.

Floyd and his colleagues at Leuthold start with a universe of 125 industry groups, mostly drawn from S&P and Morgan Stanley Capital International classifications. From there, the 125 groups are ranked using 31 factors such as earnings and sales growth rates, price-to-earnings and price-to-book ratios, insider activity, price momentum, relative strength, and other technical and fundamental metrics.

While using 31 investment criteria might seem a bit unwieldy, Floyd and his colleagues assign the 31 factors into 8 categories, such as value, growth, insider activity and relative strength. Another category, called judgmental, factors in Steve Leuthold's opinion. Very long-term momentum, the final category, is measured by using algorithms based on long-term upward trends in price and relative strength. Leuthold then cooks up a composite score for each of the 125 sectors.

Full story at Forbes.com