Sector and Industry Rotation

Just as one can formulate a strategy that allocates investment to different countries or regions in an investment universe, one can also have a view on the expected returns of various sectors and industries across borders. Industries that are more integrated on a global basis—and therefore subject to global supply and demand dynamics—are more suitable to global sector allocation decisions. Examples of such industries include information technology and energy. On the other hand, sectors and industries that are more local in nature to individual countries are more suitable to sector allocation within a country. Examples of these industries are real estate and consumer staples. The availability of sector and industry ETFs globally and locally greatly facilitates the implementation of sector and industry strategies for those portfolio managers who cannot or do not wish to implement such strategies by investing in individual stocks.