ETF Sector Rotation Strategy In Action

| August 5, 2015 | 2 Comments

sector rotationWe’ve discussed sector rotation before. It’s a powerful strategy that many investors use to outperform and index like the S&P 500.

We know that sectors and stocks don’t all move together.   The goal of an ETF sector rotation strategy is to stay invested in the best performing sectors at all times.

ETFs have made it much easier for individual investors to implement a sector rotation strategy. The ease of use and ability to deliver better returns than the S&P 500 has made it a popular strategy.

In fact, ETFs that focus on individual sectors are a staple of ETF families like SPDR, iShares, and Vanguard.  They all have ETFs that focus on specific US sectors.

Each family of sector ETFs is a little different in the way they break up the sectors or weight the stocks.  The SPDR Select Sector family of ETFs breaks down all of the stocks in the S&P 500 into 1 of 9 different sector ETFs.

9 US Sectors In An ETF Sector Rotation Strategy 

  • Consumer Discretionary Select Sector SPDR ETF $XLY
  • Consumer Staples Select Sector SPDR ETF $XLP
  • Energy Select Sector SPDR ETF $XLE
  • Financial Select Sector SPDR ETF $XLF
  • Healthcare Select Sector SPDR ETF $XLV
  • Industrials Select Sector SPDR ETF $XLI
  • Materials Select Sector SPDR ETF $XLB
  • Technology Select Sector SPDR ETF $XLK
  • Utilities Select Sector SPDR ETF $XLU

Put Your ETF Sector Rotation Strategy Into Action 

Sector rotation strategies can use many different criteria for selecting the sector ETF to buy, sell, or hold at any given time.  Some of the most common sector rotation models are based on the business and economic cycles or seasonality.

One of the easiest strategies to implement is a momentum strategy.  In short, this strategy keeps you invested in the top two performing sectors ETFs.  Here’s how it works…

You set up a screener or a watch list to track the performance of the nine SPDR sector ETFs mentioned above.  At the end of every month, you rank the sectors according to their performance over the last six months.

Buy the top two performing ETFs on the first day of the month.  Hold them for one month.  At the end of the month, rank the nine ETFs again by their six month performance.

If the same two ETFs are still the top performing ETFs, you don’t do anything.  If one or both have fallen out of the top two, you sell them.  And you buy the two best performing ETFs over the last six months.

You repeat the process every month.

A One ETF Solution To An ETF Sector Rotation Strategy 

The popularity of sector rotation has led some ETF providers to launch ETFs that are designed to implement a sector rotation strategy in a single ETF.  One of these ETFs is the Global X JPMorgan US Sector Rotator Index ETF $SCTO.

One ETF Solution To An ETF Sector Rotation Strategy $SCTO

SCTO is designed to track a momentum based US sector rotation strategy.  It’s also designed to shift into safe short-term treasuries in volatile or declining markets.

Needless to say, it’s an interesting idea… but so far the returns haven’t lived up to expectations.

A Professional Solution To An ETF Sector Rotation Strategy

Identifying industries with positive macroeconomic themes is a critical part of the Sector ETF Trader strategy.

Sector ETF Trader identifies high-return potential ETFs based on a number of macro, fundamental, and technical indicators.  These indicators offer you the opportunity to participate in some very large moves in a relatively short amount of time.

And because it focuses on ETFs, you get the advantages of both stocks and mutual funds, without the problems of high fees and over-concentration.

Rather than taking a ‘shotgun’ approach to the market, I use a time-tested system like a scalpel to carve out those ‘hidden gems’ with the greatest chance of spectacular profits.

You can develop an ETF trading system like mine or you can let me do the heaving lifting for you.

It’s not too late to pick up the most recent issue of the Sector ETF Trader.  But you’ll need to take action now to avoid missing out.  Click this link to find out more about this easy method to identifying the most profitable sector ETFs around!

Good Investing,

Corey Williams

Note: Corey Williams writes and edits ETFTradingResearch.com.  Sign up for our free ETF reports and free e-letter at http://www.etftradingresearch.com/free-sign-up.  We’re devoted to helping you make more money from ETFs.

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Category: ETFs

About the Author ()

Corey Williams is the editor of Sector ETF Trader, an investment advisory service focused on profiting from ETFs and the economic cycle. Under Corey’s leadership, the Sector ETF Trader has become one of the most popular and successful ETF advisories around. In addition to his groundbreaking service, Corey is the lead contributor to ETF Trading Research, where he shares his insights about ETFs and financial markets three times a week. He’s also a regular contributor to the Dynamic Wealth Report and the editor of one the hottest option trading services around – Elite Option Trader.

Comments (2)

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  1. Barry says:

    Mr Williams, can you suggest a web site that tracks the inflows and outflows of money in etf’s. Thank you

    • Corey Williams says:

      Hi Barry

      There are a few different places you can find data and analysis of money flows in ETFs and mutual funds.

      Lipper Research provides good fund flow information on ETFs and mutual funds… but you’ll have to pay for.

      The best free tool for researching ETF Fund Flows is on the ETF.com website. It’s a great resource. You can find fund flow information for any ETF over any given period of time.

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