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"Hot Hands"

02/03/2006 12:00 am EST


Jim Lowell

Senior Partner & Chief Investment Strategist, Adviser Investments

Each year, Jim Lowell assesses his fund universe to find a "hot hand" favorite for the year ahead. Although best known as the industry expert on Fidelity, in recent years he has also expanded his coverage to ETFs. Here, he offers a "hot hand pick" in each area of his expertise.

"You know the mantra: Past performance is no guarantee of future results. Well, it isn’t a guarantee, but it can be a significant predictor. My portfolios have strongly outperformed the market in large part due to our proprietary manager ranking system. Our success shows that managers with consistent career records of outperformance are better bets than managers with weak career records. Still, every year, I alert my members to another pattern of consistent out-performance. I call it my Hot Hands pick of the year.

"The methodology isn’t complicated. But does it work? Yes. Following a Hot Hands investment strategy at Fidelity from the end of 1983 through the end of 2005, you would have netted a total return of 6631%, while the return for S&P 500 would have been 1237%. On an annualized basis that’s 21.1% .

"This year's Hot Hand for actively managed funds is Fidelity International Small Cap (FISMX). But there’s a new twist: this fund is closed to new investors. However, there is a solution. If you don’t already own International Small Cap and still want to participate in this year’s Hot Hands pick, I would recommend that instead you should purchase International Small Cap Opportunities (FSCOX).

"My Hot Hands exchange-traded fund for 2006 is the iShares S&P Latin American 40 (ILF ASE), which was also my Hot Hands ETF last year--gaining 54.5% in 2005. Following the Hot ETF investment strategy from the end of 2001 through the end of 2005, you would have netted a total cumulative return of 192.7%, while the Standard & Poor's 500 Index delivered a pitiful 2.7%.

"So, how can you best make use of my Hot Hands ETF strategy in 2006? Buy the iShares S&P Latin American 40. Now, of course I don’t advocate lumping all your money into any one or two funds. But I believe that many growth-oriented investors could improve their performance by putting a portion (say 5% to 10%) of their portfolio into my Hot Hand fund and Hot Hand ETF."

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