XTF Sector Timing

This strategy invests equally amount in each sector and uses moving average for each sector for downside protection.

This strategy was originally proposed by XTF.  XTF web site no longer maintains such a strategy. For historical reason, we still name this after XTF. However, this strategy is just a simple moving average strategy on each asset in the portfolio. Even though XTF originally called this as 'sector rotation', a more proper name would be 'sector timing'.  The following is an excerpt from the original XTF description on the strategy.             

The rotation portfolios employ a binary strategy. The portfolio is either completely in or out of a sector/country depending on whether the model has a bullish or bearish view on the sector/country. If XTF believes that a sector or country will underperform intermediate-term U.S. Treasuries (UST) it will move completely out of that sector or country and into an intermediate-term UST. Conversely, if the sector or country is expected to outperform the intermediate-term UST, XTF will invest in the sector or country ETF. Sectors/countries are equally weighted.

There are 10 sectors modeled in the Sector Rotation Portfolio: defined by the S&P 500 Global Industry Classification Structure (GICS): Financials, Information Technology, Health Care, Consumer Staples, Telecommunication Services, Consumer Discretionary, Materials, Industrials, Utilities, Energy.

We employ the following ETFs :

Utilities: XLU
IT: XLK
Healthcare: XLV
Consumer Discretionary: XLY
Consumer Staples: XLP
Inudstries: XLI
Energy: XLE
Financials: XLF
Materials: XLB
Telecom:  IYZ

• Similar sector timing (rotation) strategies maintained on validfi.com include
  • P FundX S and P SPDR Ten Secotrs Monthly Adjust with Cash. The other portfolio employs FundX scoring is without Cash protection. The one with Cash protection has more similar risk profile.
  • Sector Rotation Fidelity Select Funds: this one concentrates on industries instead of the more broader sectors.
• Moving Average Timing strategies include
  • Asset allocation strategy Diversified Timing On Endowment Asset Allocation Model: it uses moving average on a diversified major asset classes instead.
  • XTF Country Stock Funds Timing: it uses moving average on a diversified country ETFs.

See Also

• XTF web site: unfortunately, it no longer maintains this strategy.
  
• Faber, Mebane T.  "Lazy ETF Portfolios Inspired by Gurus". www.seekingalpha.com. Feb. 27, 2007.