Sector rotation techniques have been around for decades, a relatively simple strategy often used by investors seeking to capitalize on short-term mispricings in order to generate alpha. In its most basic form, sector rotation involves segmenting the equity universe by industry, and moving into and out of various sectors depending on relative attractiveness from a valuation perspective. The idea is to overweight the sectors that are attractively priced, and underweight those that are deemed to be overvalued. Those who are able to identify overbought and oversold sectors–or even broader trends that may favor high beta or low beta stocks–can beat the market by regularly shifting exposure [see also Nine Twists On Sector ETF Investing].
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During the Great Recovery of the last 12 months, every sector of the U.S. and global economies have gained ground. But some industries have performed better than others, resulting in big performance gaps between various sector-specific ETFs. According to ETF Guide, the Vanguard Total Stock Market ETF (VTI) rose 28.8% but the technology sector SPDR [...]
At the core of many investor portfolios is an allocation to large cap, U.S.-listed equities. With market capitalizations usually exceeding $10 billion, large cap stocks generally have long operating histories, stable operations, and large amounts of cash on hand, making them less risky investments than small and mid cap firms. Moreover, although domestic large caps [...]
In the summer of 1992, Eugene Fama and Kenneth French published “The Cross-Section of Expected Stock Returns” in The Journal of Finance, a groundbreaking analysis that prompted financial presses to run headlines declaring “beta is dead.” While the death sentence may have been a bit severe, it struck a significant blow to a widely-accepted and [...]
