FAQ and Terminology
What is Tactical Asset allocation ?
please refer to this link : Tactical asset allocation
What is sector rotation ?
Sector rotation is the act of shifting (investing) money from one sector of the economy to another. The sector rotation strategy purpose is to spot the leading sectors on time so the investor can shift his money to the right sector with the purpose of gaining above market returns.
Why use a sector rotation strategy ?
A major part of the investment returns of stocks come from fundamental economic factors that drive the whole sector , so stocks on the same sector usually have highly correlated returns . For example if you were invested in the technology stocks during the 90's most of your stocks would have probably go up , if you were still invested in them during 2000-2002 most of your stocks would have probably go down. So we prefer to be invested in the whole sector and not in single stock from the following reasons :
- since anyway most of the stocks returns are correlated to the sectors
- sector investing give you more diversification then single stock
- We find it easier to spot a sector trend and ride it , then do the same using a single stock .
When should i get into / out of positions ?
Asset portfolio is updated every week on Sunday night but usually the position are held for more then one month. Once a position change was triggered and shown in the portfolio, it is recommended to change positions as soon as you can but 1-3 days of delay usually does not matter much given there was no significant price change relative to the close price on the day of the portfolio update.
What should i use , sector funds or sector ETFs ?
Usually sector funds and sector ETFs have good correlation so there should be only a small difference between the two. We prefer using the ETFs since they have lower commissions and are easier to trade. On the other hand For Mutual funds we have a longer back-testing data and history (almost 20 years) on funds compared to ETFs (only ~5 years) .If from any reason you cannot use ETFs or you prefer using Mutual funds you will probably have almost similar results .