Picking the right sectors can be the difference between a good month, quarter, year or a bad one. A lot of time goes into researching which are the best to hold and when to rotate. This article tries to show that much of this time is actually wasted as many of the sectors are effectively the same thing with slightly different betas.
Let's say you want to buy one sector in Q1 2017. You spend several days looking at the macro, the fundamentals, the holdings, and other considerations and eventually conclude Industrials (XLI) and Financials (XLF) are set to outperform. Which one is the best buy? Well before you spend another day researching, consider this:
The beta may be slightly different, but when portfolios are adjusted to take this into account (as they should be anyway), XLI and XLF are essentially the…