Monday Morning: Service promises to time market shifts

Market timing has figured prominently in news reports of the mutual fund scandals in the past few weeks, and as a result, it has come to be seen by some investors as a somewhat nefarious practice.

But market timing isn’t illegal. The reason it figures in the scandals is that most mutual fund companies have policies prohibiting it, but some favored investors were apparently allowed to skirt those rules.

Many academics argue that it is impossible to time the market. In fact, Santa Clara University professor of finance Meir Statman told attendees at Charles Schwab Corp.’s IMPACT conference in San Francisco this month that academics have found no evidence that market timing is successful in the long run.

And yet, according to news reports, a couple of boilermaker union members ran up triple-digit portfolio gains in their 401(k) plans by market timing some of the plans’ funds.

Solving problems

Frank Minssieux, president and co-founder of Fraser Partners LLC in Austin, Texas, agrees that it is very difficult to market-time individual stocks or mutual funds successfully. But he thinks it is possible to time major trend shifts in the whole market, and that is what he and his partner, Serge Dacic, set out to do with their own 401(k) and individual retirement account assets.

Mr. Minssieux thinks they have found the answer, and the result is their trend-timing service, TimingCube.

A number of market-timing products are available to investors.

But what makes Mr. Minssieux and Mr. Dacic interesting is that they grew up and began their careers in France, where workers don’t have to worry about saving and investing for retirement, because the government provides a very generous pension by U.S. standards.

As a result, neither of the men knew much about investing or the stock market.

But in the United States, Mr. Minssieux and Mr. Dacic found they had to provide much of their own retirement through 401(k) plans and IRAs, and so they began looking for ways to improve investment returns. Neither set out to become purveyors of an investment product. They simply set out to solve an investing problem for themselves.

Mr. Minssieux began his career as an electrical engineer in France, was recruited by IBM Corp. of Armonk, N.Y., and moved to the United States in 1988. At IBM, he was involved in designing e-business solutions using Internet and intranet technologies.

Mr. Dacic, who has a doctorate degree in computer science and artificial intelligence, came to the United States from France in 1992 and worked for oil services and technology firm Schlumberger Ltd. of New York and two startup companies.

all in the timing

Because they could invest their 401(k) assets only in mutual funds, they looked for indicators that would tell them when to get into or out of the market.

The result is TimingCube, which Mr. Minssieux says signals the major turning points in the Nasdaq 100 index. Because the other major stock indexes move similarly to the Nasdaq Composite Index, he says, TimingCube’s signals can be used to time investments in the other major indexes, such as the Standard & Poor’s 500 stock index or the Russell 1000 index.

After back-testing their approach, which relies on four indicators, with 14 years of data, Mr. Minssieux and Mr. Dacic took their product live in June 2001.

TimingCube gave a “buy” signal Oct. 17, 2002, catching the bottom of the bear market, Mr. Minssieux says.

However, he admits that it was whipsawed by a false “sell” signal March 28. “We’re not perfect,” he says, but that was fixed with a “buy” signal April 2. Later, the product ignored the false corrections of mid-July to early August, and the second half of September, when the market dropped 6% both times.

As a result, an investor using TimingCube to move into and out of the market this year using an S&P 500 index fund or an exchange-traded fund would be up 37.51%, compared with 19.42% for one who stayed fully invested.

Mr. Minssieux warns that the TimingCube may make only one or two calls a year, so day traders won’t find it useful. “We have lost clients because they considered us too boring,” he says.

Like the academics, I am still skeptical about market timing.

But so far, Mr. Minssieux’s service has impressive results, albeit over a short time span. The test will be the long run.

Mike Clowes is the editorial director of InvestmentNews and sister publication Pensions & Investments.