This investment strategy is fully mechanical and based on statistics tools, mathematics and technical analysis aiming to consistently outperform financial market averages and achieve high capital growth while minimizing the risk.
The strategy is based on the tendency of different sectors to be most active during different periods of the economic cycle. Since business activity for the companies translates to more revenue thus having implications in the profitability of sectors, Using the right strategy one can find top-performing sectors in the stock market.
As seen in the illustration below in each phase of the business cycle there are different leading sectors,our mission is to spot them on time for you the sector investor.
It is important to understand that the market cycle model just gives the theoretical explanation of the market environment which drives long trends in sectors but it lacks the adaptivity and accuracy required for real investing, so our framework is focused on finding the leading sectors rather than accurately pinpointing the phase of the market at any given point.
Sectors are trendy assets in nature, they tend to have more stable trend characteristic then other assets like single stock, commodities etc. This is the reason why many sector rotation strategies have a long history of market over-performance.
GOSECTOR investment strategy algorithms spots the sectors with favorable trends and ride them while always checking the markets big picture .
Below you can see an example of the market and different sectors performance for a period of 1 year.
You can see that while the market (symbol:^GSPC) return was about 20% sector returns varied from 5-30% .
The heart of our investment strategy is the algorithm which spots those sectors that have the best chances to outperform the market in the near future. For more about the sector rotation algorithm.
In the graph below you can see the market and different sector performance during 2008 crash, You can see that while the market (symbol:^GSPC) return was about -40% sector returns varied from -25% to -60%.
Major market crashed like this can do great harm our portfolio that is why we have developed a market bear protection model which is part of our overall investment strategy .This model is basically a market timing model which sells the sectors and goes to cash in the event of unfavorable market conditions.
In the graph below you can see our strategy capital growth (based on backtesting) , We highlighted in yellow the periods where bear market protection model was activated .
GOSECTOR MARKET MODE
sector ETF's / sector funds
cash, treasury ETF's / funds
smart rotation algorithm
smart rotation algorithm
Using the strategy :
Every week ,usually on sunday night the GOSECTOR strategy will peak its portfolio of 3 sector Funds / sector ETFs from the table below.
In the event of bear market (usually every few years) the strategy will switch from sectors to cash position (or money market fund).
Although this is a weekly strategy it will usually change position every month or more so it is quite easy to follow.
List of all sectors and related funds/ETF's used by the strategy:
Please notice that the sector funds and related etfs are not exactly the same although they have high correlation (more specific correlations between funds and ETFs can be seen in the table here).
You can choose which portfolio to follow: sector Funds portfolio or sector ETF's portfolio.
our sector rotation strategy Backtesting results :
The sector rotation strategy was backtested from 1994 to 2013 with great results !
Average annual Capital Growth Rate = 22%
Sharp ratio = 0.99
Maximum drawdown = -17.5 %
The strategy more than doubled the S&P500 index return with much lower risk and much better sharpe ratio.
The backtesting was done with Funds data , since we do not have ETFs data going back to 1994.
See updated results in gosector home page.