fbpx

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 / Fund20 year annualized return
Global Dynamic Sector Strength Strategy15.0%
Global Dynamic Strength Strategy12.8%
Dynamic Sector Strength Strategy12.6%
Global-US Focus Strategy11.8%
Dynamic TSP Strategy10.7%
Dynamic US Market Strategy9.3%
S&P 500 Index (SPY)7.1%
Vanguard Balanced Fund (VBINX) 60/40 Stocks/Bonds6.7%

 

Below is a table showing the sectors chosen by the Global Dynamic Sector Strength Strategy on a year-by-year basis.

YearSector Tickers# Months invested during year
1998EWS - iShares MSCI Singapore Capped ETF1
1999EWS - iShares MSCI Singapore Capped ETF4
2000XLE - Energy Select Sector SPDR ETF
XLF - Financial Select Sector SPDR ETF
3
20010
2002EWY - iShares MSCI South Korea Capped ETF2
2003EWZ - iShares MSCI Brazil Capped ETF
IBB - iShares Nasdaq Biotechnology ETF
SOXX - iShares PHLX Semiconductor ETF
10
2004EWZ - iShares MSCI Brazil Capped ETF
XLE - Energy Select Sector SPDR ETF
9
2005EWY - iShares MSCI South Korea Capped ETF
EWZ - iShares MSCI Brazil Capped ETF
XLE - Energy Select Sector SPDR ETF
11
2006EWZ - 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
2007EWS - iShares MSCI Singapore Capped ETF
EWZ - iShares MSCI Brazil Capped ETF
9
20080
2009GDX - VanEck Vectors Gold Miners ETF
EWZ - iShares MSCI Brazil Capped ETF
EWS - iShares MSCI Singapore Capped ETF
XLF - Financial Select Sector SPDR ETF
8
2010EWZ - 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
2011XLE - Energy Select Sector SPDR ETF
IBB - iShares Nasdaq Biotechnology ETF
7
2012IBB - iShares Nasdaq Biotechnology ETF
XLF - Financial Select Sector SPDR ETF
12
2013FDN - First Trust Dow Jones Internet ETF
XLF - Financial Select Sector SPDR ETF
IBB - iShares Nasdaq Biotechnology ETF
12
2014IBB - iShares Nasdaq Biotechnology ETF
SOXX - iShares PHLX Semiconductor ETF
GDX - VanEck Vectors Gold Miners ETF
EWZ - iShares MSCI Brazil Capped ETF
12
2015IBB - iShares Nasdaq Biotechnology ETF
GDX - VanEck Vectors Gold Miners ETF
FDN - First Trust Dow Jones Internet ETF
7
2016GDX - VanEck Vectors Gold Miners ETF
EWZ - iShares MSCI Brazil Capped ETF
SOXX - iShares PHLX Semiconductor ETF
9
2017SOXX - iShares PHLX Semiconductor ETF
XLF - Financial Select Sector SPDR ETF
EWY - iShares MSCI South Korea Capped ETF
11
2018SOXX - 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.

 

The information provided here is for informational purposes only.  Past performance is not necessarily indicative of future results, and all investments involve risk. The investment models and strategies discussed on this site are not appropriate for all investors, and all investors should carefully consider the potential risks of a strategy and their own investment objectives before investing in any strategy.  Strategy returns do not reflect any management fees, transaction costs, expenses, or taxes. No representation is being made that any account will or is likely to achieve results similar to those shown. Nothing on indexfundtrends.com should be interpreted as personalized investment advice. Under no circumstances does this information represent a recommendation to buy, sell, or hold any security. None of the content on this site is guaranteed to be correct, and anything shown here should be subject to independent verification. You, and you alone, are solely responsible for any investment decisions that you make.