Friday, December 24, 2010

Sector Rotation

Sector rotation is a strategy whereby the fund manager switches between sectors during an economic cycle. For example as an economy heads into recession the fund manager would likely overweight defensive sectors such as utilities and consumer non-cylicals, and as an economy started to come out of recession the manager might then overweight energy stocks, and consumer cylicals as they would gain from an upsurge in economic activity (and might also be more attractively valued at the bottom of an economic cycle). Another way of understanding it is as a form of intra-class tactical asset allocation. Fund managers that follow this strategy are likely to run complex quantitative models using leading indicators and high-frequency economic indicators for various sectors.

Synonyms:  Active management, Tactical asset allocation, Sectors, Market timing, Asset allocation

If you have any questions, or disagree with the definition, or if you have anything to add we'd love to hear from you. Please add your comments in the box below

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