U.S. Sector Rotation

A SYSTEMATIC APPROACH TO RELATIVE STRENGTH CAN HELP INVESTORS IDENTIFY MAJOR OPPORTUNITIES IN THE MARKET.

Strategy Description

The idea behind the Sector Rotation model is that the economy operates in cycles, and at any given time, some sectors of the market may be up while others may be down.  By investing in the best performing sectors and avoiding the worst, investors can maximize their growth during positive market environments.

The model examines over 20 different sector-specific SPDRs and iShares and then selects the top three scoring ETFs for the model which is rebalanced monthly. 

This model uses our “downside risk protector” to move into cash and short-term investments to protect the portfolio during protracted markets declines.

Definitions

Sharpe Ratio – the average return earned in excess of the risk-free rate.  A higher Sharpe Ration is better

Risk-Free Rate – represents the interest an investor would expect from an absolutely risk-free investment over a specified period of time.

Sortino Ratio – another measure of risk that takes into account the downside deviation of the asset.  A higher Sortino Ratio is better.

What is Drawdown?

Drawdown is the measure from the highest high to the lowest low or peak to trough during a specific time period.  It is an important measurement of risk.  A larger drawdown requires a more significant increase in the security to recover.

Volatility measures the change in price of an investment.  The higher the volatility, the higher the difference between the high and the low of an investment’s price.

The 12 Month Rolling ROR is the compound rate of return for the last 12 months.  The rate of return is the gain or loss on an investment over a specified time period, expressed as a percentage of the investment’s cost.

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