Dynamic Sector Strength Strategy
This aggressive global momentum investment strategy is designed to invest the majority of funds domestically in U.S. based investments including the S&P 500 index, and NASDAQ 100 index (QQQ) heavily weighted in U.S. based technology companies, or internationally in either developed foreign markets, and emerging markets. Up to 85% of funds can be invested in the index with the strongest recent performance.
In addition, up to 15% of funds can be invested in a less diversified sector index (described below), when that sector is performing strongly.
The strategy will switch to the safety of government bonds or cash when performance of U.S or foreign markets turns down.
The chart below is the back-tested performance of the Global Dynamic Sector Strength Strategy since 1994 (approx 25 years) compared to the Vanguard Balanced Fund (VBINX) which holds 60% stocks and 40% bonds.
How does the strategy work?
The Global Dynamic Sector Strength Strategy invests the majority of its holdings in one or two of the indexes below that have the strongest recent performance. The strategy will recommend from 60% to 85% of funds be held in the strongest performing index, and up to 30% of funds in the second strongest performing index.
- S&P 500 index.
- NASDAQ 100 index heavily weighted in technology sector.
- MCSI EAFE (Europe, Australasia and Far East) Developed Markets index.
- Emerging Markets index.
In addition to these indexes, the strategy also monitors a variety of sectors in the global investment world and will recommend up to 15% of funds be held in one of these sectors when the sector is out-performing the broader indexes above. The sectors include specific industries of the U.S. economy, as well as different country-specific funds.
Like all of our strategies, this strategy is designed to move from risky assets (stock indexes) to safety assets (bond indexes) when the broader indexes show weakness in recent performance. The intermediate-term government bond index (IEF) is used as a source of safety funds. When performance of IEF is negative, the strategy will recommend cash be held to limit losses to the portfolio.
| Asset class | Holding | Description |
|---|---|---|
| U.S. Large Cap | SPY | SPDR S&P 500 ETF Trust |
| Developed Foreign Markets | EFA | iShares MSCI EAFE Index Fund |
| Emerging Markets | EEM | SPDR S&P 500 ETF Trust |
| U.S. Technology | QQQ | PowerShares QQQ Trust |
| Government Bonds | IEF | iShares Barclays 7-10 Year Treasury Bond Fund |
| Cash | Cash | Cash held as United States dollars. |
Strategy Metrics
| Metric | Strategy | Balanced portfolio |
|---|---|---|
| Annual Return (20 years) | 9.2% | 6.7% |
| Sharpe Ratio (20 years) | 0.69 | 0.68 |
| Max Drawdown | -19.7% | -32.6% |
| Drawdown Start / End dates | August 2021 to April 2024 | October 2007 to December 2010 |
| Max Drawdown length | 32 months | 38 months |
Historical holdings
Sectors
| Country / Sector | Sector Holding | Description |
|---|---|---|
| Singapore | EWS | iShares MSCI Singapore Capped ETF |
| South Korea | EWY | iShares MSCI South Korea Capped ETF |
| Brazil | EWZ | iShares MSCI Brazil Capped ETF |
| Internet | FDN | First Trust Dow Jones Internet ETF |
| China Large-Cap | FXI | iShares China Large-Cap ETF |
| Gold Miners | GDX | VanEck Vectors Gold Miners ETF |
| Biotechnology | IBB | iShares Nasdaq Biotechnology ETF |
| China Internet | KWEB | KraneShares CSI China Internet ETF |
| Russia | RSX | VanEck Vectors Russia ETF |
| Social Media | SOCL | Global X Social Media ETF |
| Semiconductors | SOXX | iShares PHLX Semiconductor ETF |
| Energy | XLE | Energy Select Sector SPDR ETF |
| Financial | XLF | Financial Select Sector SPDR ETF |
| Consumer Discretionary | XLY | Consumer Discret Sel Sect SPDR ETF |