Momentum vs. Fundamentals: Sweden as Case in Point

| About: iShares MSCI (EWD)
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Roger Nusbaum submits: A reader left a question asking if momentum plays a role in how I weight to sector, cap, style or country. The short answer is no. The longer answer is that I tend to make those decisions with a top down eye to what I think will happen.

Example: I've written a few times about owning Sweden in a couple of different ways. The top down view: better economic data than Europe, a current account surplus, a new more conservative government and an outlook for a strong currency lead me to think it will do well.

Sweden, as measured by iShares Sweden (NYSEARCA:EWD) has done well this year. It could be argued that the indicators I cited created momentum in a technical sense. Fundamentals leading to good technicals is far from a new concept.

There are of course many instances where this 'cause and effect' is not easily seen. This is when investors can lose patience and give up on a solid theme that does not appear to be working now. The notion of 'not every theme working today' is important. Tech did not work for ages and now it is working although the fundamentals are not very evident.

Despite my being underweight tech, this is something I have mentioned countless times before. Assume for a moment I am correct about tech having no fundamental catalyst; sectors or countries or whatever, can turn in the opposite direction for what seems like no reason at all. In my opinion, case in point now with tech.

So with this example there is some sort of momentum underway without fundamentals.