For this discussion I will only be using US equities as my examples.
I am thinking about switching to business cycle investing because 1) it can potentially limit losses and/or raise gains as the macroeconomics slowly shift over time, 2) I am risk tolerant, and 3) I enjoy the research and the minor portfolio tinkering.
Basic 2017 Q1/Q2 outlooks from JP Morgan and Fidelity suggests that the US market is currently in a middle-phase cycle (with the majority of middle-phase gains behind us) and which over the next year might slowly crawl towards a late-phase cycle with little to no signs of an impending recession.
For arguments sake, let's assume these outlooks end up "only" being partially true, it would still make sense, in the intermediate-term of 12-16 months, to buy and sell etfs based on their sector weights and the historical performances of sectors during the various business cycles.
A mid-cycle friendly etf would be weighted higher towards technology, financials, and consumer discretionary.
A mid-to-late cycle transition friendly etf would uptick the weights for industrials, health care, consumer staples, and energy and lower the weights for financials and technology.
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Image: Fidelity US Business Cycle Outlook Q3 2014 & Q1 2017 Comparison
Etfs purchased would still be well-rounded and/or sector-diverse so as not to completely attempt to time the market and make an "all-in bet" on a transition that may not even be occurring. To me, it's more like a small bet on the weights of sectors based on assumed future performances. My biggest concern is that, even in a best-case scenario, my time spent monitoring the general performance of the various sectors and the overall economy will not be worth any potential gains. Is there any real and relevant research on business cycle investing?
I personally feel like the methodology and reasoning is sound but the research and analysis is, of course, inexact.
How do you personally feel about this?
Submitted March 27, 2017 at 03:51PM by TonyBagels http://ift.tt/2naiywV
