4 Sector Rotation Portfolios: 3 Winning Ideas And 1 You Must Avoid

Published: June 10, 2016

Summary

 

We found one approach to sector rotation with a 16.7% annual return over the past 10 years. This is twice the return of the S&P 500 with similar risk.

 

Two other sector rotation approaches (i.e., recipes) beat a Balanced Portfolio benchmark, and a fourth was an under-performer.

 

These sector rotation recipes are based on approaches from well-known investors and authors.

 

Each sector rotation recipe invests in ETFs or mutual funds and rebalances monthly.

 

For each portfolio recipe, we analyzed the past 10 years to obtain a detailed risk and return profile.

 

The appeal of sector rotation for investors is clear: since the business cycle causes some industry sectors to do well while others suffer, you want to be out of the down-trending sectors and invested in the up-trending sectors. A sector rotation model (or "recipe" for short) attempts to produce a market-beating portfolio by telling you which sectors to buy and which to avoid.


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