Some investment managers promote a strategy called “Sector Rotation” where they try to time the market by trading between the 11 major sectors of the economy. The gains can be tempting, but the risk is high. For instance if you owned all energy stocks, you would be up +40% year to date, but if you thought communications was the place to be, you would be down -20%. This is a possible difference of 60% in your returns. According to the chart, which includes more sub sectors, the difference is the highest since 2000.
Numerous studies show that you would have the same chances of success as these investment managers by simply flipping coins. In the long run, the risk adjusted returns from a well balanced portfolio is a safer way to invest in the market.
And oddly enough, in 2000, energy was down -30% and communications were up +30% -- the same difference as today of 60%.
