Market Pulse: Investing for growth
Most of my articles cover investing for income. That’s because income portfolios are more stable and provide more consistent returns.
Most investors, however, also need a growth component to their portfolio. Growth investors don’t try to pick bottoms. Instead, they follow a buy high, sell higher approach. That’s what this article is about.
At the end of every year there is a market segment or sector that investors wished they owned.
In 2013 the leading market segment was small-cap stocks, gaining 36 percent, and the leading sectors were Biotechnology and Broker Dealers, both gaining 64 percent.
My exchange-traded fund (ETF) rotation strategy puts you into the leading securities.
The details of my rotation strategy are covered in both of my ETF trading books, which are available at the Incline public library.
In general, the strategy buys the best performing ETFs and holds them until they underperform. Which are the best performing?
I post relative strength rankings free-of-charge each weekend on the Analysis page of the http://www.ETFtradingstrategies.com website.
Most of my growth-oriented clients take part in my Style Index program. This program ranks large-cap, mid-cap, and small-cap ETFs and holds the best performers.
It can also rotate to growth or value ETFs. This is a comfortable strategy because all the ETF choices hold at least 100 stocks and have low fees.
A more aggressive approach uses sector funds. The rotation strategy is the same — buy the best performing sectors and hold them until they underperform.
Sector ETFs have the potential for a higher return, but are also more volatile because they lack diversification.
Which market segment will outperform in 2014?
Rather than guessing, it is best to let the market tell you what is working. That is the core philosophy of growth investors.
By rotating to the best performing ETF, one can significantly outperform those that limit themselves to one market segment.
David Vomund is an Incline Village-based fee-only money manager. Information is found at http://www.ETFportfolios.net or by calling 775-832-8555. Clients hold the positions mentioned in this article. Past performance does not guarantee future results. Consult your financial adviser before purchasing any security.
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