Sector Timing for Conservative Market Timers
current markets are as volatile as any seen since the 2008
bear market chopped more than 50% off the major indexes.
We may not have a bear market in our immediate future,
but knowing that individual sectors will exit in time to
protect us is important.
Volatility is great if it is within a trend, and it often
precedes a new trend, causing unnecessary anxiety in
inexperienced market timers. But volatility is also needed
to profit, something that many market timers forget.
is one strategy that is hardly affected by the volatility,
and it is also quite profitable, year after year. For those
who are conservative market timers, we suggest the Fibtimer
does a market timer take advantage of volatility, while
protecting himself or herself from the very real risks
such volatility creates?
answer is by trading the sector funds. Here is a "quick" list
of reasons why:
1. Diversification: By having
small positions in multiple industries, you reduce exposure
to any single industry being affected by a negative news
2. Volatility: While individual
sectors are no less volatile than the rest of the market,
they do not move together. So the volatility to one's
portfolio is considerably reduced.
3. Drawdowns: Because sector
funds go to cash during sell signals, and because there
are always some funds in bull markets at the same time
there are others in bear markets (during which those
sectors are protected in money market funds), drawdowns
are kept to a minimum.
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Good in All Markets: There are
always single industries in their own bull markets.
Even during a cyclical bear market, such as we experienced
during 2008, there were always some industries moving
higher. And if not, you are still protected by being
in money market funds.
5. Active Timing: Though sector
timing is not aggressive, it is certainly active. You
will always be trading the bullish sectors, and exiting
the under performing ones. In some respects, it is
the equivalent of running your own well managed mutual
6. Trends: Industry sectors
tend to trend. And when they trend, they often move
further (in either direction) than anyone expects.
During a strong bull run, it is common to find individual
sectors that double the gains of the overall market.
The Fibtimer Sector Timer strategy covers 16 industry
specific sector funds found in the Rydex Fund Family.
Several other widely used fund families also have sector
funds, including Pro Funds and Fidelity Funds which
can be used with our sector timing signals.
Even in volatile market conditions the Sector Timer
strategy performs exceptionally well. This is proactive
money management at its best. Constantly putting your
money in the strongest sectors while removing it from
the weakest sectors during down trends.
This is where the diversity inherent in sector timing
stands out. Top performing sectors are where your timing
funds are allocated, and no one sector can cause irretrievable
damage to the portfolio should that industry collapse
But most importantly, as a portfolio strategy, sector
timing has been winning the battle against a stock
market that has gained little in the past ten years
for buy-and-hold investors.
Over the years, sector fund timing may go down as the "best
conservative strategy" because of its ability to target
funds into "only" those industry sectors which are
The low drawdowns, low volatility and diversification
inherent in sector timing, not to mention strong profitability,
cause this strategy to stand out from all the others.
In volatile market conditions sector timing can create
profits while other traders are watching their capital
While sector timing may not make huge gains during
cyclical bear markets, being mostly in cash, the strategy
will protect your investment capital. And it will then
perform well during bull markets, always keeping you
invested in those industries that are in their own
Caveat... sector timing does require active participation.
Perhaps we should say it is for "active conservative
market timers." The Fibtimer Sector Timer often makes
several changes each month though the number of changes
is much smaller during bull or bear markets when trends
timing also requires a minimum account size. Remember,
there "could" be as many as 16 open positions at any
one time, and closed (bearish) positions should be in
cash (money market funds) with those funds remaining
untouched. A good guess is that a sector timing portfolio
should be at least $25,000 to start.
new market timer could select seven or eight of the major
sectors and create a smaller portfolio. For example;
Consumer Products, Energy, Financial Services, Health
Care, Leisure, Retailing, Technology and Utilities.
The Fibtimer Sector Timer only requires a couple of
minutes a day to check for and make changes if they
are needed. And we email those changes every evening
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Disclaimer: The financial markets are risky. Investing is
risky. Past performance does not guarantee future performance.
The foregoing has been prepared solely for informational
purposes and is not a solicitation, or an offer to buy or
sell any security. Opinions are based on historical research
and data believed reliable, but there is no guarantee that
future results will be profitable.