Sector Strategies

In a sector rotation strategy, an investor overweights sectors he believes are poised to outperform, while underweighting those he believes will decline, shifting these over- and underweights dynamically over time. For example, certain sectors may be better positioned than others at various points in the economic cycle. When economic cycles move from expansion to contraction, each phase of the cycle generally favours companies in different sectors. As the economy moves in early growth phase, it typically results in increased consumer confidence, the beginning of large infrastructure projects and a potential building boom. These factors are generally considered bullish signals for companies positioned to benefit from this type of economic activity, and sectors like consumer discretionary, materials and energy tend to outperform other sectors. In a contraction, consumer staples and utilities may be considered given their relative stable cash flows and dividend payouts.

Sector strategies can also be used to correct the implicit overweight or underweight in a local country. An investor who is invested in Canada would have a sector exposure that is overweight in financials, material and energy as compared to the global equity market. For example, an investor may consider investing in health care. Health Care is a sector that is virtually unrepresented in the Canadian equity market, yet is generally considered a good defensive sector.

The liquidity and intra-day tradability of ETFs mean that investors can rotate among sectors as soon as their views change. The availability of global sector ETFs enables the application of sector rotation strategies globally as well as domestically.
Related Funds
CGR iShares Global Real Estate Index Fund
CIF iShares Global Infrastructure Index Fund
CMW iShares S&P/TSX Global Mining Index Fund
COW iShares Global Agriculture Index Fund
CLO iShares Oil Sands Index Fund
CWW iShares S&P Global Water Index Fund
CEW iShares Equal Weight Banc & Lifeco Fund
XQQ iShares NASDAQ 100 Index Fund (CAD-Hedged)
XBM iShares S&P/TSX Global Base Metals Index Fund
XHC iShares S&P Global Healthcare Index Fund (CAD-Hedged)
XST iShares S&P/TSX Capped Consumer Staples Index Fund
XUT iShares S&P/TSX Capped Utilities Index Fund
XEG iShares S&P/TSX Capped Energy Index Fund
XMA iShares S&P/TSX Capped Materials Index Fund
XFN iShares S&P/TSX Capped Financials Index Fund
XGD iShares S&P/TSX Global Gold Index Fund
XRE iShares S&P/TSX Capped REIT Index Fund
XIT iShares S&P/TSX Capped Information Technology Index Fund
CGR iShares Global Real Estate Index Fund
CIF iShares Global Infrastructure Index Fund
CMW iShares S&P/TSX Global Mining Index Fund
COW iShares Global Agriculture Index Fund
CLO iShares Oil Sands Index Fund
CWW iShares S&P Global Water Index Fund
CEW iShares Equal Weight Banc & Lifeco Fund