Sector Rotation

AAA

DEFINITION of 'Sector Rotation'

The action of a mutual fund or portfolio manager shifting investment assets from one sector of the economy to another. Sector rotation involves the sale of securities related to a particular investment sector and using the funds garnered from that sale to purchase securities in another sector. This strategy is most often used as a method of diversifying holdings over a specified holding period.

INVESTOPEDIA EXPLAINS 'Sector Rotation'

Since not all sectors of the economy perform well at the same time, managers aim to gain exposure to multiple sectors through sector rotation. Additionally a portfolio manager may attempt to profit through timing a particular economic cycle and exiting a sector as it begins to struggle while entering another on the rise. Issues related to constantly rotating in and out of sectors are the trading fees and commissions associated with such a strategy.

RELATED TERMS
  1. Business Cycle

    The fluctuations in economic activity that an economy experiences ...
  2. Sector Fund

    A stock mutual, exchange-traded or closed-end fund that invests ...
  3. Contraction

    A phase of the business cycle in which the economy as a whole ...
  4. Sector

    1. An area of the economy in which businesses share the same ...
  5. Portfolio Manager

    The person or persons responsible for investing a mutual, exchange-traded ...
  6. Economy

    The large set of inter-related economic production and consumption ...
RELATED FAQS
  1. What phase of the economic cycle tends to be strongest for companies in the Internet ...

    Companies in the Internet sector tend to perform best during the expansionary phase of the economic cycle. This sector, comprised ... Read Full Answer >>
Related Articles
  1. Fundamental Analysis

    Sector Rotation: The Essentials

    We look at how the market signals impending economic cycles and sector performance during each stage.
  2. Investing

    The Ups And Downs Of Investing In Cyclical Stocks

    This strategy can be profitable but only if you know when to dump these stocks.
  3. Markets

    Great Company Or Growing Industry?

    Look at the big picture when choosing a company - what you see may really be a stage in its industry's growth.
  4. Mutual Funds & ETFs

    Shifting Focus To Sector Allocation

    Investing in sectors may trump international investments for providing diversification.
  5. Mutual Funds & ETFs

    ETFs For Sector Rotation Strategies

    Find out how exchange-traded funds can take the bumps out of your investing style.
  6. Mutual Funds & ETFs

    Active Vs. Passive ETF Investing

    You can use these securities for more than just indexing. Explore the spectrum of possible ETF strategies.
  7. Active Trading Fundamentals

    Recession: What Does It Mean To Investors?

    Understanding the business cycle and your own investment style can help you cope with an economic decline.
  8. Economics

    The Stock Market: A Look Back

    The past century was marked by furious economic change. What can it tell us about what lies ahead?
  9. Investing

    How To Invest Outside Your Comfort Zone?

    Sometimes, when it comes to investing, we have to step outside of our comfort zone and use investment tools to express a market view or specific outcome.
  10. Mutual Funds & ETFs

    How To Apply Technical Indicators To Mutual Funds

    Mutual funds do not readily lend themselves to technical analysis, but investors can use common indicators to evaluate mutual funds as easily as stocks.

You May Also Like

Hot Definitions
  1. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  2. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  3. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  4. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  5. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  6. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
Trading Center