Sector Rotations

[Retired2021]

Just for fun is anybody trying to play the sector rotations using the ETFs? I've started trying to see if I can skate to where the puck is at on this with a small position on several of them. Win or lose is just a hobby for me. I missed the XLE low last week because I thought it would go lower (like $73.50), but did well on QQQs and staples. I like having a core position in many of them and just get in and out.

 

[kgtest]

Nope. In a past life I got burned on trying to time sectors. Thought Oil would go up and it went down. Drug the anchor too long. Lost $$ on XLE and XOM.

 

[pb4uski]

I did experiment on paper with the idea of investing in sector funds in the same percentages a the index and then rebalancing to those sector percentages under the theory that with rebalancing you would sell high and reinvest low. It seemed to give one a little more total return than just investing in the index over time. May take that up again actually.

 

[38Chevy454]

You are doing market timing, just with ETFs instead of individual stocks or other type investments. If your crystal ball is clear and giving you good info, then you can be successful with this strategy. Most have a hazy crystal ball and it is more due to general luck, in other words it is like rolling the dice or flipping a coin trying to predict the outcome.

There can be some success if you have time to follow a sector and the economy, but how do you know when to get in or get out? Rarely will you be able to predict those min and max points. If you treat as hobby, then fine, go and have fun and see if you can beat the market overall.

 

[Gumby]

MODERATOR NOTE: Just a reminder that any active versus passive debate should occur in the "Fire and Money" sub-forum not the "Active Investing ..." sub-forum.

 

[Lsbcal]

Just for fun is anybody trying to play the sector rotations using the ETFs? I've started trying to see if I can skate to where the puck is at on this with a small position on several of them. Win or lose is just a hobby for me. I missed the XLE low last week because I thought it would go lower (like $73.50), but did well on QQQs and staples. I like having a core position in many of them and just get in and out.

First, I like the idea of very well researched market timing but not ad hoc timing.

What goes through my mind in considering this:
1) A small position will not hurt my portfolio BUT it will not help my portfolio either.
2) I would have to test any idea with data that goes very far back ... like at least 10 years but preferably longer.
3) I have tried a few trend following ideas with some different sectors based on monthly data. Daily methods would be too much effort unless automated.
4) The effort I would put into this has to be consistent with the reward. Otherwise it causes me to take my mind off the longer term for the overall portfolio.
5) I personally do not like to loose money.

 

[target2019]

Just for fun is anybody trying to play the sector rotations using the ETFs? I've started trying to see if I can skate to where the puck is at on this with a small position on several of them. Win or lose is just a hobby for me. I missed the XLE low last week because I thought it would go lower (like $73.50), but did well on QQQs and staples. I like having a core position in many of them and just get in and out.

I use this set of pages to understand where we are in the business cycle. Sector ETFs aren't very interesting to me. Can't say I place many wagers on this, but it is interesting to play with a small amount.

https://eresearch.fidelity.com/eres...ectors/si_business_cycle.jhtml?tab=sibusiness

 

[Markola]

I use this set of pages to understand where we are in the business cycle. Sector ETFs aren't very interesting to me. Can't say I place many wagers on this, but it is interesting to play with a small amount.

https://eresearch.fidelity.com/eres...ectors/si_business_cycle.jhtml?tab=sibusiness

It’s interesting to click through the tabs on that page, thanks. I didn’t see a track record of a portfolio consisting of Fidelity’s weighting recommendations vs. a benchmark. Do you know?

 

[target2019]

It’s interesting to click through the tabs on that page, thanks. I didn’t see a track record of a portfolio consisting of Fidelity’s weighting recommendations vs. a benchmark. Do you know?

It's just data. I casually look there for a general sense of sector results, and what's recommended for different phases of the business cycle. But I don't act on specifics.

There are probably sector-rotation ETF's.

 

[freedom2022]

You are doing market timing, just with ETFs instead of individual stocks or other type investments. If your crystal ball is clear and giving you good info, then you can be successful with this strategy. Most have a hazy crystal ball and it is more due to general luck, in other words it is like rolling the dice or flipping a coin trying to predict the outcome.

There can be some success if you have time to follow a sector and the economy, but how do you know when to get in or get out? Rarely will you be able to predict those min and max points. If you treat as hobby, then fine, go and have fun and see if you can beat the market overall.

I concur with 38Chevy454.
I owned oil etf and sold it prior to Russia and Ukraine war.
I thought EV would take over very soon and oil price would plummeted.

 

[ERD50]

What sort of algorithm would you use? Are you looking at a contrarian view, invest in what just went down (figuring it will return to the mean)? Or trying a "hot hands" approach (momentum play)? Or other?

-ERD50

 

[Markola]

It's just data. I casually look there for a general sense of sector results, and what's recommended for different phases of the business cycle. But I don't act on specifics.



There are probably sector-rotation ETF's.

As I try to interpret the stage of cycle we’re in, according to this, it’s about the 3rd quarter, “Late Moderates”, because so many sectors are positive year to date.

 

[target2019]

As I try to interpret the stage of cycle we’re in, according to this, it’s about the 3rd quarter, “Late Moderates”, because so many sectors are positive year to date.

Are you referring to this?

https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html?pos=T

That report is linked to from the original page I suggested.

It's just a model, and reality is certainly not as regular-looking as they portray things. I think of these as phases, not necessarily quarters. For example, the recession phase can be very short, very long, etc. But it surely comes after expansion.

If you meant another page, can you link to that?

 

[DrRoy]

No, no. It's just another form of market timing.

 

[Lsbcal]

No, no. It's just another form of market timing.

Please note the title of this forum and the Moderator note from Gumby above.

 

[Markola]

Are you referring to this?



https://institutional.fidelity.com/app/item/RD_13569_40890/business-cycle-update.html?pos=T



That report is linked to from the original page I suggested.



It's just a model, and reality is certainly not as regular-looking as they portray things. I think of these as phases, not necessarily quarters. For example, the recession phase can be very short, very long, etc. But it surely comes after expansion.



If you meant another page, can you link to that?

I guessed at Late Moderates based on the first link you provided, since so many sectors are positive at the moment, as on that table. This new one is interesting, too, thanks. I like these sorts of big picture macro cycles concepts as a framework for the financial news.

 

[target2019]

I guessed at Late Moderates based on the first link you provided, since so many sectors are positive at the moment, as on that table. This new one is interesting, too, thanks. I like these sorts of big picture macro cycles concepts as a framework for the financial news.

Ok, I understand better. There is a pdf with clearer graphics and more explanation.

The Business Cycle Approach to Asset Allocation
https://institutional.fidelity.com/app/literature/view?itemCode=943044&renditionType=pdf&pos=na

The Business Cycle Approach to Equity Sector Investing
https://institutional.fidelity.com/app/literature/view?itemCode=943044&renditionType=pdf&pos=na

From the 2nd link in this post (above), I copied a clearer picture of Exhibit 7. It's similar to the graphic on Fidelity's web page. So we're looking at a generalized summary of a typical business cycle. As you pointed out, we're in the third stage. Other Fidelity graphics show that we are almost in the Recession stage.

The chart is ranking the sectors in this way:
++ green shading, greatest outperformance in the stage.
+ green shading, outperforms.
empty white shading, no pattern of outperformance.
- red shading, underperforms.
-- red shading, greatest underperformance.

It is an interesting puzzle, for sure. You can trace your sector fund, or individual company, and determine if it is just like an average Energy company or fund. Or maybe my sector fund or individual company is more diversified, and has interests that mitigate its underperformance periods.

 

[Markola]

^^^^^ Thanks for the resources. Someday we will have the next recession. I saw this nugget in the second link, which is good to remember:

Recession phase
The recession phase has historically been the shortest, lasting slightly less than a year on average—and the broader market has performed poorly during this phase.

 

[target2019]

^^^^^ Thanks for the resources. Someday we will have the next recession. I saw this nugget in the second link, which is good to remember:

Recession phase
The recession phase has historically been the shortest, lasting slightly less than a year on average—and the broader market has performed poorly during this phase.

When I discovered that recession(s) always follows growth, I don't mind so much. It's a time when weak companies fail, and others succeed. I prefer to watch that weeding out process happen in our broad index funds.

But I can't resist going into my sandbox and looking around...

 

[Markola]

Yes, although since the Great Recession, companies are no longer allowed to fail, but that’s a different discussion.

 

[ownyourfuture]

Just for fun is anybody trying to play the sector rotations using the ETFs? I've started trying to see if I can skate to where the puck is at on this with a small position on several of them. Win or lose is just a hobby for me. I missed the XLE low last week because I thought it would go lower (like $73.50), but did well on QQQs and staples. I like having a core position in many of them and just get in and out.

If you enjoy it, & win more often than you lose, I think it's great.

 

[GaryInCO]

There is a pair of strategies called Mama Bear and Papa Bear, which are based on strategies from well-known fund managers. They swap from one ETF to another based on recent market action. The signals are posted FREE at this site:
https://www.etfscreen.com/muscular-portfolios/

To trade them: once a month go look at the site, see if anything has changed, place your orders if so. Rinse and repeat next month. No confusion about when to get back in or whatever, just follow the signals every month.

Both Mama and Papa make a higher return than SPY, with significantly lower drawdowns. E.g. their worst drawdown in the last 20 years was less than half the SPY drawdown. You can see the performance at the site above. You will have more tax events and more short-term profits, but with higher returns and lower drawdowns you should still come out ahead. Especially if the markets have more drawdown events like 2008.

 

[Turkey Tom]

CAPE Index

Just for fun is anybody trying to play the sector rotations using the ETFs? I've started trying to see if I can skate to where the puck is at on this with a small position on several of them. Win or lose is just a hobby for me. I missed the XLE low last week because I thought it would go lower (like $73.50), but did well on QQQs and staples. I like having a core position in many of them and just get in and out.

Rober Shiller, an Nobel Prize economist developed a system of taking the four poorest performing sectors or the 11 sectors of the S&P 500. He dropped the worst performing sector and purchased the other three sectors. He did this every six months. The system seemed to "work". DoubleLine funds (Jefery Gundlach) sells this system in two funds. One is CAPE, an ETF. The second is DSENX, an OEF. I have owned the fund. The last year or so the method seems to have underperformed the S&P. The original fund, DSENX, replicated the method with futures, however, the futures market seized up during the pandemic. While DSENX still exists, CAPE was started to avoid the futures makret.

 

[orbops]

I tinkered with some sector funds in the past few years (which coincides with the market downturn) :
Solar - down 22% with an additional couple of solar stocks that are down 36% to 67%
Semiconductor - down 23%
oil - down 10%

I've decided to stay out of sector funds and stick to S&P 500 funds...

 

[GaryInCO]

I've decided to stay out of sector funds and stick to S&P 500 funds...

S&P500 has indeed done very well. HOWEVER... much of that outperformance came from the FAANG stocks. Especially during the pandemic, when there was tremendous demand for online services.

That outperformance cannot continue, or the FAANGs would own the world. If the FAANGs slow down, S&P500 will become significantly less attractive.

I think S&P500 is still a good place to put your money. Just don't expect it to keep acting like it has in the past few years.