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