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Sector Rotation

Chartz with Jartz – Over the last six months, the Utilities sector has been the lowest performing sector in the S&P 500. With a six month return of 5.93%, the defensive sector falls in last behind Consumer Staples and Consumer Discretionary, 8.14% and 8.94% respectively. When the Investment Management Team (IMT) rebalanced the portfolios in February, the Utilities sector was lagging, or underperforming in comparison to the other sectors. Using technical analysis of charts as well as sector rotation graphs, the IMT decided there was value in the sector and its defensive nature would help give more diversification to our portfolios. As shown in Figure 1 circled in red, the chart of XLU (Utilities ETF held in portfolios) bottomed out in late February. At that point, other investors viewed the security as over sold and bought in causing a 16% increase. The price had deviated from the 14 Week Moving Average line (Green) and saw a slight pullback to the level we are currently at today. This movement helps set up the possibility for a longer move upwards. Focusing on the rotation of different sectors can help the IMT choose what areas to invest in. In Figure 2, we see the Utilities sectors strength moving from lagging to improving over the last 12 weeks. At one of the buy points in February, XLU was a heavy laggard, however, the pattern of the Rotation Graph was signaling a movement out of lagging and into improving. As displayed below, the security moved into improving and price followed suit These techniques and tools are used by our IMT every day and help the team decide what investment may work best for our clients’ portfolios. For more information regarding the Investment Management Team, please tune into the blog every Wednesday for weekly updates.


Figure 1


Figure 2


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