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. How does the risk of investing in the retail sector compare to the broader market?

    The retail sector is divided into seven segments, all of which confer greater risk than the broader market. Retail securities ... Read Full Answer >>
  2. What category of retailers will perform most strongly when the economy is doing well?

    When the economy is doing well, the market segments that perform best are volatile segments with products and services that ... Read Full Answer >>
  3. How can an investor profit from the cyclical nature of the electronics sector?

    An investor can profit from the cyclical nature of the electronics sector in two ways. He can employ sector rotation, shifting ... Read Full Answer >>
  4. 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 >>
  5. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  6. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... 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 Basics

    Explaining Assets Under Management

    Assets under management is a metric that measures the market value of assets that an investment company manages for investors.
  10. Investing Basics

    What is Accrued Income?

    In a mutual fund, accrued income is earnings that have accumulated over the year, but have not yet been paid out to shareholders.

You May Also Like

Hot Definitions
  1. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  2. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  3. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
  4. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  5. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  6. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!