sector rotation for stocks

Discussion of the Stock portion of the Permanent Portfolio

Moderator: Global Moderator

Post Reply
fdb

sector rotation for stocks

Post by fdb » Mon Jun 09, 2014 9:04 am

Hello,

I'm very new to this forum so please tolerate this question if it has already been discussed. I'm convinced sector rotation is the way to go with stocks. Using Ishares or Fidelity sector etf's ( commission free if a Fidelity account holder) one can plug these into http://www.etfscreen.com/ relative strength data base ( also free) and select on a monthly basis the etf with the strongest potential for future gains. Data from the web site Dark Liquidity indicates that sector rotation with the S&P sector etf's outperform buy and hold by a 2:1 margin over about 15 years of data.

Would employing this improve on the overall gain in a PP? Also by setting distant stops you can protect 1/4 of your funds from a bad black swan event.
User avatar
MachineGhost
Executive Member
Executive Member
Posts: 10054
Joined: Sat Nov 12, 2011 9:31 am

Re: sector rotation for stocks

Post by MachineGhost » Mon Jun 09, 2014 10:49 am

fdb wrote: Would employing this improve on the overall gain in a PP? Also by setting distant stops you can protect 1/4 of your funds from a bad black swan event.
It will, but you must fully committ to the concept for it to work and it also presumes you're using a system that has been proven long-term (lots of subscription rotation services gave up in the 90's/00's only to come back with endlessly re-backtested results in recent years).  You don't need to use a stop; thats what the bonds and gold in the PP is for.  In fact, stops generally reduce returns.  And I wouldn't advise holding one fund at a time, you need to diversify.  You really need to look at this from all angles and in every nook and cranny so that you won't abandon it when the going gets rough.  There may be some sector rotation strategy ETF's already.

Here's quick backtest of an industry rotation strategy that I haven't looked at in six months:

[img width=800]http://i57.tinypic.com/mvoqaf.png[/img]
Last edited by MachineGhost on Mon Jun 09, 2014 10:51 am, edited 1 time in total.
"All generous minds have a horror of what are commonly called 'Facts'. They are the brute beasts of the intellectual domain." -- Thomas Hobbes

Disclaimer: I am not a broker, dealer, investment advisor, physician, theologian or prophet.  I should not be considered as legally permitted to render such advice!
fdb

Re: sector rotation for stocks

Post by fdb » Mon Jun 09, 2014 12:49 pm

My understanding is that sector rotation etf's have come and gone because of limited traction in the market. The chart you posted confirms my suspicions. In '08 the total value of equities was down by about half as much as SPY. If your other three sectors were of a non-variable ( eg. IAU and TLT) then the lesser loss posted in equities should drop to the bottom line for that year.  In good times at least most data suggests that sector rotation of the nine spider etf's or the corresponding Ishares should outperform the SPY or equivalent etf.

Thanks for the comments.
Post Reply