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Sector Timing - Diversified and Profitable
While very aggressive stock market timing strategies generate high profits over time, they can be frustrating over short time frames. Aggressive means just that.
Trading shorter term market trends and using both bull and bear positions. The more trades are made, the more small losses. Gains are often made in relatively few
trades, but those few winning trades are very profitable.
Timers who are unable
to handle losses may exit mid trade and not realize the gains aggressive strategies can generate over time.
We have spoken about and recommended diversification within market timing strategies
many times in this column. Believe me, it has its place in "your" timing portfolio.
Some timers have difficulty allocating funds within a diversified portfolio. But at FibTimer, we have two "sector based" timing strategies
for our subscribers that do it all for you.
The "Diversified Timing Portfolio" and the "Sector Timer."
You do not need to be aggressive to make solid profits. If aggressive market timing causes you heartburn, try diversifying.
The Diversified Market Timing Portfolio
is an active timing strategy in that it requires a hands on approach to market timing. The Diversified Timing Portfolio has a small portion allocated to bull and bear funds. Because of its design, it rarely if ever has drawdowns. Because of its stability, we have listed it
in our "Conservative Strategies" section.
The Sector Timer only trades the sector funds and has no bear fund positions. At this time we market time sixteen industry sectors.
We talk more about trading the sectors below.
Either of these strategies may be just what you are looking for.
Trading The Sectors
How does a mutual fund
market timer take advantage of volatility, while protecting himself or herself from the very real risks such volatility creates, as well as from
the potential drawdowns that can occur?
The 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 event.
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 extreme minimums.
4. 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 2000-2002, 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 fund.
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 (such as we are currently experiencing), it is common to find individual sectors that double the gains of the overall market.
Winning The Battle
The FibTimer "Sector Timer" strategy (and the Diversified Timing Portfolio) cover 16 industry specific sector funds found in the Rydex Fund Family. Several other widely used
fund families also have sector funds, including ProFunds and Fidelity Funds, which can be used with our sector timing signals.
Even in volatile market conditions, during which the overall stock market is not doing well, the sector timing strategies
perform exceptionally well.
The Sector Timer and the Diversified Timing Portfolio offer proactive money management at its best.
Constantly putting your money in the strongest sectors while removing it from the weakest sectors.
This is where the diversity inherent in sector timing stands out. Top performing sectors are where your market timing funds are allocated, and no one sector can
cause irretrievable damage to the portfolio should that industry collapse without warning.
Conclusion
Over the years, sector fund timing may go down as the "best strategy ever created" because of its ability to target funds into "only" those industry sectors
which are performing well.
The low drawdowns, low volatility and diversification inherent in sector trading, not to mention strong profitability, make this timing strategy stand out from all the others.
In volatile market conditions sector timing can create profits when other traders are lucky just to be holding onto their capital,
while drawdowns, if they occur at all, become almost a non-event.
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 outperform during bull markets, always
keeping you invested in those industries that are in their own bull markets (The Diversified Timing Portfolio allocates 20% to bear funds during such times).
The FibTimer Sector Timer and Diversified Timing Portfolio do require active participation. Sector 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, a sector timing portfolio should be at least $25,000 to start.
The FibTimer Sector Timer is my personal choice for IRA accounts (including my own accounts). Its potential is excellent and it only requires a couple of minutes a day
to check for and make changes if they are needed.
Be sure to read the "Trading rules and Details" at the bottom of the FibTimer Sector Timer and Diversified Timing Portfolio report pages.
Recent articles from the FibTimer.com market timing services;
It's All In How You Play The Game
Predicting The Future
It's Different This Time
A Closer Look At "Price"
Investor vs. Trader...Which Are You?
The Other Side Of The Trade
Market Timing And The Presidential Election
Let Your Profits Ride...Rules For Successful Market Timing
Critical Issues For Market Timers
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and data believed reliable, but there is no guarantee that
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