How To Beat The Market Without EVER Picking Stocks

I've spent the last few months building something that I probably shouldn't tell you about. It's not a uranium enrichment program or webcam business, but it looks like I'm actually coming around to the idea of ETFs. And after everything I've said about them, I know that's going to need some explaining. But if you're new to the channel, I'm James Helliwell. I'm a former professional trader, and in this video I'm going to be sharing my over 15 years of knowledge that I programmed into a completely new system that I think will change how you see the markets forever. Now, just to be clear, I developed these tools that I'm about to show you long before the days of social media, and one of them got me into a hedge fund, and the other I presented to Citibank's global head of trading, believe it or not, at 24 years old. And I don't say this to flex, but rather to emphasize that I understand how these guys work from an early age. They follow rotations, they look for tactical setups, and it's usually over a 1 to 3 month horizon. So if you're a day trader, this video isn't going to be for you. And if you're happy putting a couple hundred pounds a month away, accepting whatever the market gives you, then it's probably not for you either. But if you want to learn a professional system that you can use in your own investing, then be sure to watch right to the end. Now, before I show you the tools, let me first of all give you a bit of context. I'm going to break this down into 3 buckets that you can use to generate better ideas and hopefully get better returns: countries, sectors, and industries. This is how the guys in the funds actually think about markets, and it's the framework that I've built these tools around that I'm going to show you now. So let's start at the top because The problem that a lot of people face is whether you should stick to the S&P or maybe rotate into a global ETF. Your feed's no doubt full of people telling you that the US is overvalued, that you need to diversify, that, or there's no point betting on anything outside of US tech because we're all going to be replaced by AI. But the hedge funds I know don't work that way. They use data to systematically spot rotations that are happening in real time, long before the consensus catches up and everyone else piles in. And there'll be a link in the description to everything I'm about to show you now that you can access before I officially launch it in a few weeks' time, completely free. So check that out. So what we're looking at here is a rotation chart, and you've got essentially four quadrants split between improving, leading, weakening, and lagging. So the idea is that you want to be buying countries, in this case, as they are improving and going into leadership, and getting out of the ones that are weakening before they begin lagging. So these squiggly lines in the middle are various country ETFs. So you might recognize some of them. You've got Germany in there, you've got EFA, which is developed markets excluding the US and Canada, India, China, and then some others like Canada, the UK, and Australia. So this gives you a global heat map of exactly what's going on in real time, exactly as the funds look at it. So I want to break each of these down. You can deselect the countries on the right-hand side to make it clearer, and then click on and off the ones that you want to focus in on. So in this case you can see Germany with the trail over the last 12 weeks going from the leading quadrant where it was outperforming, in this case, the MSCI World Index. This is all relative to that benchmark. It weakened and now it's ended up in the lagging quadrant. So what this means is that Germany has been underperforming. You can see it more clearly in the price chart if you pull up a ratio on TradingView, for example, of Germany compared to the MSCI World. You can see the period of outperformance and where the momentum began to turn, which has ultimately resulted now in a prolonged period, or number of weeks in this case, of underperformance. So this is Germany leading, and this is Germany falling behind the rest of the world. So this is exactly how the model works. So Germany would be one of the ones to avoid according to this setup. Now, when I look through the other constituents here, the various other countries, there wasn't a great degree of leadership. Australia was kind of doing okay, but it was actually Canada that stood out surprisingly. So you can see that it's remained within a fairly compact circle or cycle somewhere between leading and weakening slightly, but it only briefly crossed into the lagging quadrant. So it spent most of the time, I'd say, within leadership, and that's where it remains currently. When you pull up the same chart, the ratio of Canada compared to the MSCI World, here's where you find this trend. So this rotation graph makes it much easier to spot these trends, these opportunities for outperformance and underperformance that you can think of in that decision matrix within your portfolio of should I remain in the US or should I go global, whether it's into the MSCI World or different countries. And you can see the two plotted at the same time on the chart here. As you begin to get a bit more experienced with this, I didn't want to put too much on the chart at first, you can see everything bunched together and begin to pick out these trends really, really quickly. So this is exactly how a hedge fund would bet on the outperformance of one leg versus the underperformance of another. Doesn't have to be against the market, but you can trade then the divergence. And that 1 to 3 month tactical horizon or time frame is what you can see here to particularly in this part. So that's the first idea that we've generated using this. The second one can actually be found within emerging markets. As you can see here, with India and China specifically, they've remained in the lagging quadrant. They haven't shown much sign of improvement. They spent most of the time down here. Comparatively, Brazil has actually remained over the right-hand side, which is where we want to be ideally. Up here, but you're still outperforming as long as you're on the right-hand side of this chart, even if the momentum is coming off a bit. On the y-axis you have momentum, on the x-axis you have the relative strength, the ratio. So this gave me an idea to potentially look within emerging markets at Brazil compared to India or China, or maybe 50/50. And the trend here is super strong. So this shows you how if you're investing in a particular region and the subset of that where you don't necessarily want the exposure to emerging markets versus developed markets, you can begin to isolate that risk by trading one leg versus the other. In this case, betting on Brazil versus India or China. Of course, none of this is investment advice. It's for educational purposes only, as always. But hopefully now you're beginning to see not only how hedge funds trade, but also the kinds of tools that they use, which again, you can get a link to in the description to try for free. So that's how these rotations play out at a country level. But I want to take it a step further now because buying an ETF that tracks an entire country or region is overlooking rotations that are going on amongst different sectors within it, and they explain as much as 80% of the move in individual stocks. And this is exactly where the pros unlock a further source of edge. So let's take a look at what goes into our second bucket. It's the same tool that we just saw, but this time we've switched it over to look at US sectors. You can see all of the lines here showing the rotations. It looks quite messy, but you can select and deselect these here. And the ones that I want to call out in terms of leadership are technology. You want to see this slingshot in a clockwise direction ideally. And that's what we see with tech. And before you tune out and go, bloody hell, big tech, don't hate the player, hate the game. There's a reason why these stocks outperform. And this process is also confirming it. When you pull up the ratio chart on TradingView, this being XLK versus SPY. As the chart rises, it's outperforming. You can see a bit of a correction here and the improvement presumably starting now, which may see it slingshot higher. No guarantees, of course, but this is the process. And on the other side of that, we should be looking for weaker sectors that we could potentially trade against or simply avoid if you're thinking about your overall portfolio. And the one that stood out for me was in materials, which was leading for a number of weeks and just in the last 3 weeks has been significantly weakening and has now just crossed into the lagging quadrant. When you pull up a chart, here you go, an established downtrend that saw some relief, some reversion perhaps to the mean, but now is beginning to tick lower once again on a relative basis compared to the overall market. So looking at the two, tech as we saw has been improving, materials weakening and now crossing into the lagging quadrant. This gives us a potential relative trade. Established uptrend, reversion, and then a presumed continuation. The key thing that professionals look for compared to retail investors is a continuation of the trend. A reversion or regression to the mean. Retail traders have a habit of trying to time the market and bottom pick and that kind of thing. Whereas the funds are looking for momentum. And after a little reset, that's a much better entry than going in at the high. It's looking for a continuation in established trends, which is exactly what we see here. So we've seen countries, we've seen sectors, but now I want to turn your attention to a level that almost nobody goes to, and that's in industries. Now this is more granular than the sectors that we've just seen, and this second tool I've built looks at things in a way that you've likely never seen before as a retail investor because it doesn't rely on price action unlike last one. And whether you stick to ETFs or maybe decide to do single stocks, the rewards for getting this right will make the idea of sticking to the S&P 500 ETF about as appealing as eating glass on a gin hangover. Believe me, I've done some wild stuff. I built a dashboard that basically shows a heat map of all of the various sub-industries of US manufacturing. Unlike the previous one, this is based on qualitative and some quantitative data, but none of it is price-based. It's sentiment-driven. So you can see the 18 industries here. This is for the US, so it's not applicable globally. And I've highlighted the strongest one at the top according to the 3-month momentum in textiles. So let's take a look at this first. So this very clearly tells us that this sector is growing, so it has positive momentum and gives us an impression of that over 1 month, 3 months, 6 months, and 12-month periods. It's sorted by 3 months and you can see a spark chart or a preview over the right-hand side showing the improvement. Now beneath it you have a list of some example companies and these are just for quick reference. I strongly advise that you do your own research with again, this of course not being financial advice and it being very much in a beta stage of testing where I'd love to get your guys' feedback. But for now, I want to look into one of the stocks here, for example, Leggett Platt. Very quickly, you can see that it's been in a horrendous downtrend relative to the S&P 500, but it shows signs of bottoming out. And that momentum that we just saw on the heat map is fundamental. So this is going to move before the price action, which is what makes this setup so interesting. Just returning to it, we can look at another sector in miscellaneous manufacturing. If you think, well, what the hell is miscellaneous manufacturing? It's a fairly good question. You can see an example again of some of the companies here. Now amongst these, Esco stood out to me. This is separate to my long-term quality focus model. We're looking at this as the hedge funds do. But Esco, a company that I wasn't otherwise familiar with, has some exposure to aerospace and defense, which unfortunately is a highly topical theme at the moment given the conflict between US and Iran. And this shows how you can uncover stock ideas that previously weren't even on your radar with the trend here that's taken place since 2022 and the recent pop that in part has been driven by other macro factors. So this is how you can use it for ideation. Of course, this isn't the end point for your research, but this established trend and particularly the price action that we've seen in recent weeks could well be supported by the industry momentum that we're tracking here with our heatmap. Now returning to the dashboard for a minute, let's look for some laggards. Wood products were at the bottom, so we're thinking timber merchants. Got some examples like Weyerhaeuser there. UFP Industries, I think, is mainly paper packaging. This is a timber and forestry ETF, ticker is WOOD, compared to the S&P. And you can see a really established downtrend here. There has been a little bit of reversion, but the trend appears to be continuing lower. And with the industry momentum that we can see on the dashboard, board, it would suggest that this could continue. But what we can also do is shift it from 3 months to the 1-month momentum, and it's a similar distribution, but this time we've got food, beverage, and tobacco down at the bottom along with apparel. And this is the one that I want to look into. There's a bunch of names on there that you might recognize— Crocs, Columbia, Levi's— and they ultimately represent the overall consumer discretionary super sector. That you might otherwise invest in with XLY. If you look at Crocs, you can see this established downtrend relative to the S&P 500. It may be about to break lower according to this, and with the heat map weighing on it, it wouldn't surprise me if we do see that break lower. The second one though, in Colombia, looks even worse. Just looks to be heading lower and lower, and I'd keep an eye on a break of that trend line relative to the S&P. Sector level, as I mentioned, this being XLY. If you didn't want to get involved in those specific stocks, you could look at the sector overall, which has been trending lower following a little reversion and could well be set up to continue heading in that direction relative to the S&P. The other area of interest on the short side was in food and beverage, as I mentioned. So you've got the likes of Campbell Soup, you probably recognize them, but there's General Mills in here, and Hormel Foods, which produce Spam. So in the case of Hormel, relative to the S&P 500, again, it has been underperforming for the last 3 years since 2023. So this is an established downtrend with the sector momentum currently weighing further on it. General Mills though is the one that stands out. It's just in freefall again relative to the S&P. If it feels too risky to look at single stocks, then there is a food and beverage ETF and you'll find other examples, this being PBJ, that again, reflect a similar trend compared to the overall market. So these would be the sectors and the sub-industries and even the single stocks to avoid according to how the hedge funds trade. And on the other side of this, you can of course begin to pick winners. So the relative trade for me, if I was to put this on, would be to look for miscellaneous manufacturing companies potentially on the long side because this had been red and it's now amongst the leaders. Which suggests a reversal. And on the other side, I'm looking for green that should soon be turning red. And in this case, I'm going to side with apparel. Here's a chart of— I believe the ticker is MADE for manufacturers against XRT for the retailers. What a trend this is. So if the entire market sold off in a risk-off environment, the way hedge funds would look to protect themselves is to be long one cyclical industry, in this case manufacturing, against another cyclical industry, retailers, so that when all cyclicals get hit, the gains on your short leg should make up for the losses on your long leg. And over time, the two should diverge during a normal market environment. Another way to do it would be at the super sector and do XLI for industrials against the same one that we've looked at in XRT. So broader industrials would give you exposure to companies like, I don't know, maybe Illinois Tool Works, for example, Fastenal, a bunch of others. And again, it's a very clear established trend showing outperformance in industrials, in fact breaking to new highs. So that is exactly how you can generate ideas and get better returns, capitalizing on momentum within regions, industries, and sectors, exactly like the hedge funds that I worked with. If you want to get access to the tools, click the link in the description. It's completely free, and I genuinely would appreciate your feedback on them as I begin build all of this out ahead of a launch in a few weeks' time. If you've enjoyed this, check out this video next. It's coming up now. Until next time, I've got to go and catch a flight to Argentina. So adiós, amigos.