We’ve talked about it before. We’ll talk about it again. We talk about it every day. We’ll keep doing it until we’re blue in the face…because we can’t understate the importance of investment diversification.
Like life, the only consistency in the market is change.
People always ask us which sectors are our favorites. The answer is all of them because financial analysis may lead to any sector being the right choice, depending on the fundamentals and investor risk tolerance.
And any of them could be “winners” at any given time. Look at how much change there was last year:
In fact, from 2006 to 2019, no sector was able to repeat as a top performer on an annual basis. In other words, there were no repeat champions.
The top three sectors overall for 2019 were information technology, communications services, and financials. But as the chart shows, there was a lot of quarterly rotation amongst multiple sectors.
That rotation can be an advantage for investors. We believe a fundamental-based quarterly sector rotation strategy can improve overall performance of an investment portfolio, if it ties together:
- A strong asset allocation strategy
- The investor’s short- and long-term plans
- Consistency (to avoid emotional decisions)
- The investor’s specific risk tolerance
The tactical sector determinations provide potential for overall outperformance of the market. But the sector choices must be based on fundamental analysis because things change every quarter.
In summary, we want to emphasize the significance of asset allocation and diversification. They enable great potential for gains and principal protection. But we must also stress that everything must be done in conjunction with each investor’s individual plan and risk tolerance. Together, these are the hallmarks of successful investing.
Securities sold through CoreCap Investments, Inc., a registered broker-dealer and member FINRA/SIPC; advisory services offered by CoreCap Advisors, Inc., a registered investment advisor. Cornerstone Financial and CoreCap are separate and unaffiliated entities.