Sector Rotation

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.

BREAKING DOWN '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.

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