SECTOR ROTATION

Page Summary: Use Styles RouteMap to maximise profits throughout the stock market cycle

Explanation
The concentric circles represent the key investment variables:

Bold White text shows the four stages of the economic cycle

In a bull market iInvestment themes typically rotate into fashion clockwise as shown by the green arrow

For example Inflation normally forces governments to raise Interest Rates which causes a Bear Market, during which Gold shares often perform best.  

Econometric Forecasts
Interest Rates
Bond Yield
Industrial Production
Business Confidence
Commodity Prices
Gold Price

• The Key Variable chart type shows the economic variable that best explains the fundamental performance of each style or sector. It also includes a Best Guess for the next one or two years, based on our econometric models
• The Slide Show is programmed to run through the styles and sectors in the order shown rotating clockwise in the image above, i.e. Real Estate > Financial > Health Care > Growth > Value > SmallCap > Technology > Resourses > Gold

However reality is more complex than in such classic stock market cycles. In particular: -

• In some regions economic cycles are typically export-led. In such cases capital goods sectors, such as Technology, will typically lead the market, rather than lagging as in the classic cycle.
• Devaluations often suddenly upset cycles, such that there is a sharp transition from sectors that are interest rate sensitive to those that are economically sensitive. This has frequently been the case for the United Kingdom.
• Secular trends can over-ride cycles - most dramatically for Resources, which peaked in 1980 and Technology in recent times.

Correlation with STOXX Europe 1986 - 2000

Our choice of sectors is designed to maximise returns by exploiting systematic divergences in performance characteristics. Our selection is driven by low correlation with market averages and with one another. It is no co-incidence that this selection mirrors the most widespread specialist sector funds, as both are intended for profit-maximisation rather than risk-minimisation. We make no pretence at adopting a full   industrial classification as used by benchmark index publishers, since comprehensive coverage is not required for our purposes.

The table alongside shows the correlation for monthly returns of selected sectors with the STOXX Europe index, which is shown as an example typical of other regional benchmark indexes. The sectors researched in the Style RouteMap are shown in bold black type. All the main economic sectors are shown against a grey background. Additional specialist sub-sectors are shown against a white background.  As can be seen, the correlations for these are comparatively low. * We have combined Mining Metals and Energy into a Resources sector and include South African Gold for completeness.

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