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sector rotation strategy

ETF Trading Strategies - A Look at Several ETF Trading Systems

One of the attractive features of ETF’s is that they can represent a relatively narrow sector of the market, but don’t generally have the volatility of individual stocks. This makes them ideal for some traditional investment approaches. Here is a look at a number of different etf trading strategies.

Asset allocation - The first is the classical asset allocation approach. This approach is championed by many investment advisors, especially those who embrace the efficient market hypothesis, which basically suggests that you can’t beat the markets, so the best you can do is buy and hold low cost funds, and reduce the overall risk of the portfolio by investing in assets that aren’t correlated and should not move in concert. In this case the key feature is that since you don’t think you can beat the market, all you want from a fund is the lowest cost way to purchase a portfolio of stocks in a given sector.

Investing in Index Mutual Funds: Pitfalls of Buy and Hold

Are you overwhelmed by the options when it comes to buying (and selling) mutual funds? With over 10,000 funds out there, there are more funds than stocks listed on the stock exchanges. How do we sort through this morass to find a good selection of funds, and how do we know when it’s time to sell?

One popular choice that gets a lot of attention is investing in index funds. But even this simple solution can be confusing. Do you buy just one stock index fund and one bond index fund? If you buy more than one?

Trend Following - Trend Following Traders Returns for 2008

Sector rotation and trend following are interrelated parts of most successful trading strategies. As we all know, 2008 was a tough year in the market. But trend following allows you to follow trends down as well as up, so it could be successful in bear markets as well. Here’s a look at a study of trend following returns for 2008.

Sector Rotation Strategy - Simple Rotation Trades Just One Fund a Month

This sector fund trading system uses a strategy of sector rotation that only trades one fund at a time from the Fidelity sector funds (the Select Funds). It’s performance is pretty good overall, although it tends to have drawdowns at least as deep as the overall market.

The overall stock market has had a run of flat performance over the last several years. If you look at the performance of the S&P 500 from 1999 through 2005, you’ll see that it was up about 0.2% compounded annual return, not much better than a money market fund, and the Nasdaq 100 has fared even worse. Granted, it got there in an interesting way, but overall it basically went nowhere.

Bear Funds - Bear Mutual Funds and ETFs

As we discussed in our previous article on our hedged mutual fund portfolio when the market is moving against the bulls as quickly as it has been recently, its time to take another look at risk management strategies, and in this case specifically hedging strategies. There are a number of ways to hedge your mutual fund or ETF position, but our favorite is the use of bear funds or bear ETFs.

What Are the Best ETF’s to Trade

What are the best ETFs to trade? We often get questions about the list of ETF’s we use, and why we “only use 50 Exchange Traded Funds” in our system. Aren’t we leaving money on the table, and shouldn’t we be trading all the available ETF’s in order to get the best possible returns from our system?

Free Trading System Software

We’ve gone through the development of a price based mutual fund trading system. We’ve taken a look at the requirements for the data feeds for our mutual fund trading system. But what kind of trading system software can we use for this system? Is there some free trading system software we can use?

Mutual Fund Trading Systems - The Importance of Your Data

We’ve just written about using recent price performance as a way to build a trading system for mutual funds, specifically in this case the Fidelity Select Fund trading system. So, given that the integrity of the whole system is built solely on the price information that we have available, it would be no surprize to find that the integrity of the data feed is very important. The good news is that you can find mutual fund quotes on loads of web sites, so this is really of little concern. Well, that’s not quite true.

Choosing the Best Mutual Funds | Why Worry About Volatility

As we noted last time, just using price change as the way to make our selection of the top Fidelity Select Fund, has historically been profitable, but can be volatile and have some breathtaking drawdowns along the way. We’ve also written in the past about the problems with volatility when trying to identify the best mutual funds.

As an example, take a look at the plot below. It shows some recent price action from FSVLX and FSCGX for about one month. As you can see, they both have about the same percentage price change over the last month, but the red line (FSCGX) is much less volatile, and just looking at it you would suspect that it is more likely to be in a true uptrend than FSVLX over this same time period.