A.I.M. Users Bulletin Board

[ls7550]

Thanks Tom

SPY being more "fund-like" tends to not offer as many compounding LIFO cycles. If SPY is divided out into its 9 general business sectors and AIM-High applied to each, then there are many more cycles to add to the return. I, too, used to keep a model of SPY and of the 9 business sectors running. Unfortunately I gave it up some years ago. The 9 AIMs did FAR better than the single SPY AIM. That was a direct result of the compounding LIFO activity of the cash.

For the UK 2008 to recent, measuring the equal weighted average of all of ten sectors and dividing each sector gain by that average provides a indicator of how each sector has relatively performed compared to that broader average, with figures of :

0.47
0.49
0.69
0.77
0.95
1.12
1.13
1.18
1.22
1.98

Financials the worst, followed by basic materials, both declining by around 50% below the average. Tech being the best, near doubling the average. Average being a 83% nominal gain. In nominal terms the worst is down around -15% whilst the best is up 260%.

So as you say, partitions/sectors individually provide some reasonable volatility for AIM to work with and elements of inverse correlations (some buying as others sell).

Mobile Telecom sector is a recent interesting case in the UK, 5.25% dividend yield, 5.91x dividend cover, PE 3.22. Such that even when stock prices in general may appear to be relatively high there's still often sub-set sectors within that where there's relatively good value.

Back in April 2008, the Health Care sector had a reasonable yield of 4.2%, nearly 2x dividend cover and 12.5 PE. As of more recent that sector has more than doubled (120%) since then and outpaced the average sector value by 22%

If a single holding doubles and halves you end up at break even - the product is 1.0 (zero gain) whilst the average is +25 and the volatility (standard deviation) is relatively high. If you have two holdings that also double and half but are completely out of sync with each other then equal amounts invested in both yields a 25% gain, with a zero standard deviation. i.e. all of the volatility is eradicated and the geometric (actual) gain is close to the arithmetic average. AIM of sectors in part captures the benefits of such characteristics.