Sector Rotation
Sector Rotation refers to an investment strategy that involves moving Capital between different sectors of the economy to Capitalize on cyclical trends and changes in market conditions. This strategy is based on the premise that various sectors perform differently at different stages of the economic cycle, such as expansion, peak, contraction, and trough.
Investors engaging in sector rotation aim to allocate their investments to sectors expected to outperform the market while reducing exposure to those anticipated to underperform.
Examples:
- Technology Sector: During periods of economic expansion, investors may increase their allocation to technology Stocks, anticipating growth due to increased consumer spending and business investment.
- Consumer Staples Sector: In times of economic uncertainty or recession, investors might shift their focus to consumer staples, which tend to be more resiLient as they include essential goods that people continue to buy regardless of economic conditions.
Case:
In 2020, during the COVID-19 pandemic, many investors rotated out of energy Stocks, which were severely impacted by reduced demand, and moved towards technology and healthcare sectors, which saw increased demand due to remote work and a focus on health, respectively.