The SweetSpot Investment Letter

November 7, 2006

Subject:  new universe

Greetings,

Maybe you noticed a few weeks ago that Fidelity discontinued hourly pricing of its Select sector funds.  (Be honest: did you know the funds used to be priced hourly?)  According to Fidelity:

“Since hourly pricing was introduced in 1986, the marketplace has evolved, and other products such as exchange-traded funds [ETFs] now exist that not only track many of the same sectors and industries as the Select Portfolios, but also can be bought and sold at intraday market prices.”

And I thought I had a problem with run-on sentences...

More Changes to Our Strategy

Fidelity used to be the only game in town if you wanted to invest in sectors using mutual funds as the vehicle.  That has changed.  Tracking just Fidelity funds as we have been now seems less likely to yield results that accurately reflect the broader market.  Therefore, I have expanded our universe to include both ETFs and non-Fidelity funds that belong to distinct sectors.  I will collect and aggregate the data for all funds in each sector and then rank the sectors accordingly.

My research has identified 83 sectors, up from the 57 we have been trading.  The sectors are represented by around 235 funds and ETFs.  [ed. note:  As of December 2007 there were over 90 sectors and 300 sector funds.]  This is bad news for me.  It means that required data collection and calculations will take a week or two each year instead of a day of two.  Yet even with a workload that’s many times heavier than before, I’ll still be putting in just two percent of the amount of time the professionals spend each year trying to beat the market.  Their Herculean efforts notwithstanding, history tells us that the professionals will fail and we will succeed….

Cheers,

Neil