Sector rotation ETFs

Introduction

There are 14 ETFs that use sector rotation as an investment strategy. Every public company is categorized into one of 11 sectors - read more about sectors. It is well documented that in any given year, certain sectors of the stock market perform better than others. You can monitor the most recent performance of each of the eleven sectors using our sector performance tool.

The question is whether an investor can successfully buy and sell stocks in whatever the current "hot" sector is. There are a handful of ETFs that are using such a "sector rotation" strategy. Here are the ETFs if you want to read some examples of the approaches taken by sector rotation ETFs:

SymbolDescriptionInception DateCategoryActions
EEHELEMENTS Linked to the SPECTRUM Large Cap U.S. Sector Momentum Index ETN08/01/2007US Equity Analyze
CAPEBarclays Shiller CAPE Index ETN10/10/2012US Equity Analyze
FVFirst Trust Dorsey Wright Focus 5 ETF03/05/2014US Equity Analyze
FVCFirst Trust Dorsey Wright Dynamic Focus 5 ETF03/08/2016US EquityAnalyze
EQRRProShares Equities for Rising Rates ETF07/24/2017US Equity Analyze
SECTMain Sector Rotation ETF09/05/2017US EquityAnalyze
PWSPacer WealthShield ETF12/14/2017US Equity Analyze
SZNEPacer CFRA-Stovall Equal Weight Seasonal Rotation ETF07/23/2018US Equity Analyze
XLSRSPDR SSGA U.S. Sector Rotation ETF04/03/2019US Equity Analyze
AESRAnfield U.S. Equity Sector Rotation ETF12/17/2019US Equity Analyze
DWEQAdvisorShares Dorsey Wright Alpha Equal Weight ETF12/27/2019US Equity Analyze
DWUSAdvisorShares Dorsey Wright FSM US Core ETF12/27/2019US Equity Analyze
SSUSDay Hagan/Ned Davis Research Smart Sector ETF01/17/2020US Equity Analyze
ARMRArmor US Equity Index ETF02/11/2020US Equity Analyze

Let's look at the approaches used by these ETFs.

EEH - ELEMENTS Linked to the SPECTRUM Large Cap U.S. Sector Momentum Index ETN

This is an exchange traded note issued by the Swedish Export Credit Corporation that is linked to the performance of the SPECTRUM Large Cap U.S. Sector Momentum Index.    The Index tracks the value of a notional portfolio composed of the ten sub-indices of the S&P 500 Index. The level of the Index is based on the relative weights of the sub-indices within the Index; such weights are monitored and may be rebalanced daily based on a momentum strategy. According to this momentum strategy, the weights of sub-indices that outperform the S&P 500 Total Return Index (the “SPTR”) are increased in the Index, while the weights of sub-indices that underperform are reduced. The weights are then modified to account for the correlation between each sub-index and the SPTR. The Index is designed to take advantage of the disparate performance of the sub-indices relative to each other and to the SPTR. Market cap: $1,067,940

CAPE - Barclays Shiller CAPE Index ETN

This is an exchange traded note issued by Barclays Bank that is linked to the performance of the Shiller Barclays CAPE US Core Sector Index.    On a monthly basis, the Index calculates the CAPE (Cyclically Adjusted Price Earnings) ratio of the nine GICS sectors of the S&P 500. As of today, there are actually eleven GICS sectors, but the Index looks at nine sectors because the real estate sector is combined with the financials sector and the telecommunications sector is combined with the technology sector. The Index ranks the nine sectors by the CAPE ratio, and selects the five sectors with the lowest CAPE ratio. The Index then ranks those five sectors based on price momentum over the past twelve months. The sector with the lowest ranking is eliminated from the Index. The Index then allocates an equally weighted notional long position in the total return version of the four remaining S&P 500 sector indexes. Market cap: $186,533,613

FV - First Trust Dorsey Wright Focus 5 ETF

Seeks to track, before fees and expenses, the Dorsey Wright Focus Five Index.    The Index is designed to provide targeted exposure to the five First Trust sector and industry based ETFs that DWA believes offer the greatest potential to outperform the other ETFs in the selection universe. Market cap: $2,003,094,564

FVC - First Trust Dorsey Wright Dynamic Focus 5 ETF

Seeks to track, before fees and expenses, the Dorsey Wright Dynamic Focus Five Index.    The Index is designed to provide targeted exposure to five First Trust sector and industry based ETFs and the Nasdaq US T-Bill Index (the "cash index"). The Index combines Dorsey, Wright & Associates' (DWA) systematic momentum approach to sector rotation and risk management via cash equivalents represented by 1- to 3-month U.S. Treasury bills in the cash index. To construct the index, DWA begins with the universe of First Trust sector and industry ETFs and the cash index. Using the DWA proprietary relative strength methodology, the ETFs are compared to each other to determine inclusion by measuring each ETF's price momentum relative to other ETFs in the universe. Each ETF is given a score that allows the index to objectively determine where it ranks relative to all other ETFs in the universe and five ETFs that satisfy certain trading volume and liquidity requirements are selected for inclusion. The relative strength analysis is conducted twice monthly. ETFs are replaced when they fall sufficiently out of favor, based on their relative strength, versus the other ETFs within the universe. When an ETF is added or removed, the index is rebalanced so each ETF position is equally weighted. The Index can gain varying amounts of exposure to the cash index when the relative strength of more than one-third of the universe of First Trust ETFs begins to diminish relative to the cash index. The cash index is evaluated twice monthly. The cash index may constitute between 0% and 95% of the index, but is limited to an increase or decrease of no more than 33% per evaluation. Market cap: $247,000,049

EQRR - ProShares Equities for Rising Rates ETF

Seeks to track, before fees and expenses, the Nasdaq U.S. Large Cap Equities for Rising Rates Index.    The goal of the Index is to provide relative outperformance, as compared to traditional U.S. large-cap indexes, such as the S&P 500, during periods of rising U.S. Treasury interest rates. The Index selects 50 stocks using a three step process: 1) Eleven Nasdaq sector indexes are ranked on their weekly correlation with the US 10-year Treasury yield over the previous three years. 2) Each security in the Nasdaq US 500 Large Cap Index is ranked on its weekly market-neutral correlation with the US 10-year Treasury yield over the previous three years. 3) The Index selects the top 5 securities with the highest correlation with the US 10-year Treasury yield over the previous three years from the top 5 sectors with the highest correlation with the US 10-year Treasury yield over the previous three years, for a total of 50 stocks. The five selected sectors in the Index are given the following weights based on their sector index correlation rank: #1 ranked sector – 30%, #2 ranked sector – 25%, #3 ranked sector – 20%, #4 ranked sector – 15%, #5 ranked sector – 10%. The 50 securities selected for the Index are assigned an equal weight within their respective sector. The Index is rebalanced and reconstituted quarterly on the last Friday of March, June, September and December. Market cap: $1,164,400

SECT - Main Sector Rotation ETF

This is an actively managed fund that seeks to outperform the S&P 500 in rising markets while limiting losses during periods of decline. The fund seeks to achieve its objective through dynamic sector rotation. Sector selection is optimized by carefully reviewing the sector, industry, and sub-industries in the fund’s portfolio and allocating to sectors which appear undervalued and poised to respond favorably to financial market catalysts. Market cap: $545,737,500

PWS - Pacer WealthShield ETF

Seeks to track, before fees and expenses, the Pacer WealthShield Index.    The Index uses a trend-following strategy that directs some or all of its exposure to U.S. equity securities or U.S. Treasury securities depending on the strength of the high-yield corporate bond market relative to U.S. Treasury bonds and the momentum of certain U.S. equity sectors or industries and of long-term U.S. Treasury bonds. Every month the index will run the risk indicator calculations to determine whether the index constituents will be RISK ON or RISK OFF. On the third to last business day of the month, the Index will observe the ratio between the S&P 500 High Yield Corporate Bond Total Return Index (SP5HYBIT Index) and the S&P U.S. Treasury Bond 7-10 Year Total Return Index (SPBDU10T Index). If that ratio is above its 5 month exponential moving average (RISK ON), the index exposure will be 100% equities or a blend of equity and 3 month US treasury bills. If that ratio is below its 5 month exponential moving average (RISK OFF), the index exposure will be 100% 20 year US Treasury bonds (SPBDUSLT Index) or 100% 3 month US T-bills (SPBDU3T Index). When in risk mode, the Index selects 5 sectors using relative strength of their six month total return. Equity exposures are selected from 10 S&P Sector Indices, the S&P Biotech Select Industry Index, and the Dow Jones Internet Composite Index. Market cap: $50,933,500

SZNE - Pacer CFRA-Stovall Equal Weight Seasonal Rotation ETF

Seeks to track, before fees and expenses, the Pacer CFRA-Stovall Equal Weight Seasonal Rotation Index.    The Index invests equally in the S&P 500 Equal Weight Consumer Staples and Health Care sectors from May through October. From November through April, it invests equally in the S&P 500 Equal Weight Consumer Discretionary, Industrials, Information Technology and Materials sectors. Market cap: $58,500,000

XLSR - SPDR SSGA U.S. Sector Rotation ETF

This is an actively managed fund that seeks to provide capital appreciation by tactically allocating among the GICS-defined sectors of the S&P 500 Index. The investment approach combines quantitative and qualitative analysis and dynamically adjusts active risk budgets relative to the benchmark. Typically rebalanced monthly, but rebalancing may occur more or less frequently depending on market conditions. Market cap: $58,339,200

AESR - Anfield U.S. Equity Sector Rotation ETF

This is an actively managed fund that seeks to outperform traditional large-cap equity indices and styles over full market cycles by investing in various sectors of the equity market using ETFs. Based on the Sub-Adviser’s tactical investment style, the Fund will invest in ETFs based on the Sub-Adviser’s macroeconomic and asset cycle investing methodology that determines the rank order of equity sectors, and then makes periodic shifts to i) capitalize on market opportunities, or ii) avoid market declines. The Fund expects to hold between eight to ten ETFs at any given time. The core of the Fund’s portfolio will be comprised of a combination of the 11 main industry sectors that make up the S&P 500 Index, although additional positions may be included in the Fund’s securities. Over- and under-weights of industry sectors are determined by the overall market and sector outlook. The Fund is generally rebalanced and adjusted on a quarterly basis, or when changing conditions warrant an adjustment. Market cap: $57,364,500

DWEQ - AdvisorShares Dorsey Wright Alpha Equal Weight ETF

This is an actively managed fund that seeks total return. The ETF takes a modern sector rotation approach to domestic large cap equity equal weight investing. Using Nasdaq Dorsey Wright’s (Dorsey Wright) disciplined and quantitative proprietary relative strength research, DWEQ implements a two-factor approach to invest in top-ranked U.S. equity securities within the tax-efficient structure of an ETF. First, industry sectors are ranked based on relative strength. Next, from the three top rated sectors, individual equity securities are selected based on their relative strength ratings with those displaying both a buy or bullish signal and rising price momentum (both the “B” and “X” columns in point and figure charting) given higher ratings. DWEQ systematically reviews and rotates into the highest ranked sectors by reallocating to the highest ranked equity securities in those sectors. DWEQ also utilizes defensive investing features, allowing it to gradually add cash based on overall market momentum indicators. When cash is defensively added to the portfolio, DWEQ will reassess the strategy’s momentum indicators so as to move back into equity exposure once broad equity strength is displayed. Market cap: $29,971,500

DWUS - AdvisorShares Dorsey Wright FSM US Core ETF

This is an actively managed fund that seeks total return. The Advisor allocates the Fund’s portfolio investments using research obtained from the FSM Core Solution US Core Model (the “FSM US Core Model”), a proprietary model developed by Dorsey, Wright and Associates, LLC (“DWA”). The FSM US Core Model applies a proprietary ranking system based on certain technical indicators to a pre-determined universe of US large-cap ETFs, selected by DWA. Each ETF within the universe that ranks in a top tier is included in the model. If an ETF in the portfolio no longer ranks in a top tier at the time of rebalancing, then that ETF is removed and the position is allocated to a Defensive Investment. The Advisor uses the FSM US Core Model to measure the relative ranking of the Fund’s core portfolio. When the model identifies broad equity weakness and cash strength, the Advisor will sell equity positions in order to allocate some or all of the portfolio to Defensive Investments. When the Fund is invested in Defensive Investments, the Advisor will shorten the Fund’s rebalancing frequency to seek to move back into equity ETF positions once the model again identifies favorable equity market conditions. Market cap: $39,032,000

SSUS - Day Hagan/Ned Davis Research Smart Sector ETF

This is an actively managed fund that seeks long-term capital appreciation and preservation of capital. A proactive, adaptive strategy, SSUS is incorporated in the U.S. and considered a “fund of funds” that, under normal market conditions, seeks to achieve its investment objective by principally investing in unaffiliated equity ETFs that track the performance of the individual sectors of the S&P 500 index. The strategy seeks to enhance returns over a buy-hold, equity benchmark by overweighting and underweighting S&P 500 sectors based on NDR’s proprietary sector model. It will also, ideally, mitigate the effects of major market declines by reducing equity market exposure through the use of NDR’s Catastrophic Stop model. Market cap: $60,827,250

ARMR - Armor US Equity Index ETF

Seeks to track, before fees and expenses, the Armor US Equity Index.    The index is designed to provide exposure to the sectors of the US equity market that the fund’s index provider believes are most likely to generate positive returns while aiming to provide downside protection and lower volatility. Individual sectors of the US equity market are evaluated utilizing a proprietary, rules-based market performance indicator (MPI) to select sectors which may offer strong, long-term performance potential with lower expected downside risk and volatility. Only sectors which score well based on the MPI are included in the index. If no sectors appear attractive based on this metric, the index will invest primarily in US Treasury obligations. ARMR rebalances monthly to ensure current market, economic, and financial conditions are incorporated into the construction of the portfolio. Market cap: $2,640,106

Conclusion

One thing we do at StockMarketMBA.com is give each ETF a rating for long term investors. Here is a summary of our ratings

Our ratingCount
Incomplete7
Pass2
Consider3
Editor's choice2
Total14

Here are the sector rotation ETFs that we have given a rating of "editor's choice", our highest rating:

SymbolDescriptionInception DateCategoryActions
CAPEBarclays Shiller CAPE Index ETN10/10/2012US Equity Analyze
SZNEPacer CFRA-Stovall Equal Weight Seasonal Rotation ETF07/23/2018US Equity Analyze


All data is a live query from our database. The wording was last updated: 04/30/2020.

2020 © Stock Market MBA, Inc. Terms of use | Privacy policy