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Invest with the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy by Luis Garcia-Feijoo, Gerald R. Jensen, Robert R. Johnson

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CHAPTER 5

SECTOR ROTATION AND MONETARY CONDITIONS

I skate to where the puck is going to be, not to where it has been.

Wayne Gretzky

One of the most popular trading strategies employed by active equity managers is a sector or industry rotation strategy. As the name implies, an investment manager implements a sector rotation strategy by shifting portfolio weights, that is, periodically rotating into some sectors while rotating out of others. The impetus behind sector rotation is the realization that not all sectors perform well at the same time. Implementing a rotation strategy involves moving into the best performing sectors and out of the worst performers; the tricky part, of course, is to make the move before a sector becomes the best or worst ...

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