As the economy chugs along, market sectors will rise or fall. Some have capitalized on this trend through a sector rotation strategy through an actively managed exchange traded fund.
The Huntington U.S. Equity Rotation Strategy ETF (NYSEArca: HUSE) holds stocks from the S&P Composite 1500, which tracks large-, mid- and small-cap U.S. companies, and will overweight or underweight various sectors based on potential for capital appreciation given current market conditions.
The managers will select components based on a bottom up analysis that factors in management track record, balance sheet management and favorable growth trends, writes Roger Nusbaum for TheStreet.
About 30% of the fund is overweight sectors that the managers favor in the current economic cycle, which include health care at 21.7% and technology at 19.1%.
Nusbaum notes the curious decision to overweight seemingly conflicting sector picks since health care is typically seen as a defensive non-cyclical sector, whereas technology companies tend to act more cyclical.
Underweight sectors include utilities 1.9%, basic materials and telecom services each at 2.4%.
The sector rotation strategy follows an investment manager’s decision to shift assets from one sector to another. Along with diversification qualities, the portfolio manager may seek to generate alpha, or outperformance, through timing economic cycles by exiting a sector that is looking fatigued and rotating into rising areas.
HUSE is up 4.0% over the past month, up 7.4% over the last three months and up 29.2% over the past year. In comparison, the S&P 500 gained 26.8% in the past year.
For more information on active ETFs, visit our actively managed ETFs category.