Momentum vs CAPE

Two interesting and conflicting updates today, as far as investment strategies.  Higher CAPE implies over priced securities, with lower prospective returns over the long run.  Inclusion in the DWA Sector 4 Model is based on highest price momentum over the previous month.

So DWA is holding these 4 sectors although CAPE is saying they are currently the highest priced.

This is not necessarily required – price change is not the same as overall price level.

From Systematic Relative Strength:


And from Mebane Faber:

CAPE Updates, Sectors then Countries:

Country Start Date Latest Date Latest
Financials 3/31/93 3/31/13  10.69
Energy 3/31/93 3/31/13  15.04
Utilities 3/31/93 3/31/13  16.47
Telecom 3/31/93 3/31/13  18.68
Materials 3/31/93 3/31/13  18.93
Industrials 3/31/93 3/31/13  19.22
Healthcare 3/31/93 3/31/13  19.82
ConsStpls 3/31/93 3/31/13  23.57
Technology 3/31/93 3/31/13  24.04
ConsDisc 3/31/93 3/31/13  27.16

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