It seems with latest buzz about ETFs and the ease of trading individual sectors within an index, sector rotation strategies are becoming increasingly popular. So the question I’m frequently asked is “how can your sector rotation strategy increase the odds of outperforming the market?”
The answer is quite simple. A positive outlook for the economy surely helps the broad market, but many times during the economic cycle some sectors will outperform the market and respond more favorably than others due to various external factors. The intent of a sector rotation strategy is to increase exposure to the sectors anticipated to outperform and reduce exposure to the sectors anticipated to remain flat or under perform. In doing so, the portfolio manager can capitalize on market fluctuations with the opportunity to benefit from sector expansions and sidestep sector declines.
Keep in mind there are many ways to formulate a sector rotation strategy. Here are the most popular:
Technical Analysis, the analysis of price action, trend lines or other quantitative factors enabling technical analysts quantify a trend change
Top-down Analysis, the theory that changes in the economy can signal imminent changes in sector movement
Fundamental Analysis, the approach of evaluating company financials within a specific sector
Therefore, if a portfolio manager monitors the general health of the economy, the various external factors that have the ability to drive a specific sector and has a solid money management strategy they have a good opportunity to outperform the broad market.
To learn more about the sector rotation strategy I employ for my clients or how we swing trade visit my website http://www.etfupdater.com/
Mike Matousek, CMT
Portfolio Manager, ETF Updater
http://www.etfupdater.com/
ETF Swing Trading and Day Trading 