Benefits of adding Sector Funds to investment portfolios
What are sector funds?
A sector fund focuses investments in businesses that operate in a particular industry or sector of the economy. Sector funds can exist as ETF’s, ETN’s or Mutual Funds. By focusing investments in a smaller portion of the economy, sector funds enable investors to concentrate their investments in an area of the economy that can grow faster than the economy as a whole. A sector fund is not as diversified as a broader index like the S&P 500, and thus is more volatile. This can lead to potentially greater gains, but with the risk of greater losses.
Why should you consider investing in sector funds?
Our Global Dynamic Sector Strategy invests up to 15% of its portfolio in sector funds that demonstrate the best recent price momentum. This has allowed the strategy to outperform our other strategies over a 20 year period.
| Investment Strategy / Fund | 20 year annualized return |
|---|---|
| Dynamic Sector Strength Strategy | 12.6% |
| Dynamic TSP Strategy | 10.7% |
| Dynamic US Market Strategy | 9.3% |
| S&P 500 Index (SPY) | 7.1% |
| Vanguard Balanced Fund (VBINX) 60/40 Stocks/Bonds | 6.7% |
*Returns above as of June 2020
Below is a table showing the sectors chosen by the Global Dynamic Sector Strength Strategy on a year-by-year basis.
| Year | Sector Tickers | # Months invested during year |
|---|---|---|
| 1998 | EWS - iShares MSCI Singapore Capped ETF | 1 |
| 1999 | EWS - iShares MSCI Singapore Capped ETF | 4 |
| 2000 | XLE - Energy Select Sector SPDR ETF XLF - Financial Select Sector SPDR ETF | 3 |
| 2001 | 0 | |
| 2002 | EWY - iShares MSCI South Korea Capped ETF | 2 |
| 2003 | EWZ - iShares MSCI Brazil Capped ETF IBB - iShares Nasdaq Biotechnology ETF SOXX - iShares PHLX Semiconductor ETF | 10 |
| 2004 | EWZ - iShares MSCI Brazil Capped ETF XLE - Energy Select Sector SPDR ETF | 9 |
| 2005 | EWY - iShares MSCI South Korea Capped ETF EWZ - iShares MSCI Brazil Capped ETF XLE - Energy Select Sector SPDR ETF | 11 |
| 2006 | EWZ - iShares MSCI Brazil Capped ETF XLF - Financial Select Sector SPDR ETF XLY - iShares MSCI South Korea Capped ETF EWS - iShares MSCI Singapore Capped ETF | 9 |
| 2007 | EWS - iShares MSCI Singapore Capped ETF EWZ - iShares MSCI Brazil Capped ETF | 9 |
| 2008 | 0 | |
| 2009 | GDX - VanEck Vectors Gold Miners ETF EWZ - iShares MSCI Brazil Capped ETF EWS - iShares MSCI Singapore Capped ETF XLF - Financial Select Sector SPDR ETF | 8 |
| 2010 | EWZ - iShares MSCI Brazil Capped ETF XLY - iShares MSCI South Korea Capped ETF GDX - VanEck Vectors Gold Miners ETF FDN - First Trust Dow Jones Internet ETF XLE - Energy Select Sector SPDR ETF | 7 |
| 2011 | XLE - Energy Select Sector SPDR ETF IBB - iShares Nasdaq Biotechnology ETF | 7 |
| 2012 | IBB - iShares Nasdaq Biotechnology ETF XLF - Financial Select Sector SPDR ETF | 12 |
| 2013 | FDN - First Trust Dow Jones Internet ETF XLF - Financial Select Sector SPDR ETF IBB - iShares Nasdaq Biotechnology ETF | 12 |
| 2014 | IBB - iShares Nasdaq Biotechnology ETF SOXX - iShares PHLX Semiconductor ETF GDX - VanEck Vectors Gold Miners ETF EWZ - iShares MSCI Brazil Capped ETF | 12 |
| 2015 | IBB - iShares Nasdaq Biotechnology ETF GDX - VanEck Vectors Gold Miners ETF FDN - First Trust Dow Jones Internet ETF | 7 |
| 2016 | GDX - VanEck Vectors Gold Miners ETF EWZ - iShares MSCI Brazil Capped ETF SOXX - iShares PHLX Semiconductor ETF | 9 |
| 2017 | SOXX - iShares PHLX Semiconductor ETF XLF - Financial Select Sector SPDR ETF EWY - iShares MSCI South Korea Capped ETF | 11 |
| 2018 | SOXX - iShares PHLX Semiconductor ETF FND - First Trust Dow Jones Internet ETF | 6 |
As you can see, this strategy was not invested in any sectors during the 2001 and 2008 bear markets.
Interestingly, the strategy was invested in the iShares NASDAQ Biotechnology Index ETF (IBB), shortly after Obamacare was enacted (signed into law by on March 23, 2010) during the years 2011-2015 and took advantage of the growth in the healthcare industry that resulted from the new law.
