In our company’s style of money management, we have many strategies, one of which is a Multi-Strategy Sector Rotation portfolio.
The system typically purchases 3 sectors, or countries, each month out of a basket of 40.
The sectors we purchase are determined by a series of 4 technical analysis indicators.
As I get the signal, though, I can’t help but consider what fundamental or economic scenario might be setting them up for success.
Our portfolio has positions in three sectors via the SPDR S&P Insurance (KIE), the SPDR S&P Housing & Construction ETF (XHB), and the First Trust Health Care AlphaDEX ETFs (FXH).
Occasionally in our process of sector rotation, we have a sector that stays “in the zone” for more than one month.
That is the case this month with Insurance, which we bought initially at the end of June.
From a fundamental perspective, we believe this sector makes a lot of sense.
Insurance companies are constantly investing the premiums they receive into a variety of bonds and other fixed income instruments.
The prospect of the US Federal Reserve beginning to raise interest rates very soon will really help this sector (along with many other financial sectors) improve the performance of their investment holdings.
We bought into the homebuilders sector in July.
The above chart looks like it’s very close to a breakout in my opinion and the thing that I like about this sector is that a big piece of its costs are related to raw materials.
Because the value of most commodities have been getting hammered in recent months, I expect that that could decrease the cost of materials for builders and thus increase their profit margins.
Also, the low interest rate environment coupled with the expectation that rates will rise soon could motivate business owners to hurry and build their buildings and apartments now in order to lock in low rates before they could potentially go higher.
This would have the effect of creating higher demand in the near-term.
Finally, health care has been a good bet for quite some time now in my opinion.
Its uptrend has been so resilient, and even the smallest pullbacks seem to be met with quick support.
It’s no secret that as the Baby Boomer generation ages, larger and larger chunks of the wealth that they have accumulated over their lifetime will go to hospitals and long-term care facilities to meet their health care needs.
Combine that with the increases in premiums and participants in health insurance because of Obamacare and the incredible advances health technology, and it is making for a trend that is hard to bet against in my view.
Simply put, there is a lot of money flowing into this sector that I believe should help it continue to perform.
The investments discussed are held in client accounts as of August 17, 2015. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.