Oil prices rose and the energy sector did well as a result. For years the AI trade has lifted technology, and just this past month we saw financials and healthcare take their turn. So there is no single sector that wins forever. But there is always at least one sector that is working.
That is the basis for a rotation strategy. You move capital into the sectors that are doing well, or that you expect to do well. The method varies. It can be driven by macro, by fundamentals, or by momentum.
Sector rotation is the established idea. Factor rotation is the newer cousin, and many investors are not even familiar with factors to begin with.Factors are characteristics of stocks with evidence of outperformance. Value, quality, momentum, size and low volatility are the foremost ones. Factors rotate too, and none of them wins all the time. Value investors know this better than anyone. Value languished for years before roaring back over the last two.
So if the two strategies sound alike, do they behave alike? And can either of them beat the S&P 500?
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