How about a bottom line? Are we supposed to slice and dice and guess? My takeaway is to own an S&P or Total US market ETF along with a Treasury ladder or total bond ETF and total international ETF. Rebalance annually. Do well. Sleep well.
Fair question. The very last bullet point was meant to address the elephant in the room question, ie., should I ditch the index I'm tracking that doesn't throw the leading sector out. (Answer: No.) That said, it still seems noteworthy that something as simple as tossing the leading sector could have burnished returns.
Thank you! Great post. It's definitely interesting to see what happens if you got rid of that top sector, but the rest becomes a giant guessing game. Granted, the market is so concentrated in the leading sector now I'm tempted to buy a little EQWL. But 4 of the Mag 7 trailed the S&P this year and we had good returns, so maybe the tech sector is already rotating out of the top spot while other sectors in the 493 pick up the slack. That's what I'm thinking and why I'm just holding my VTI rather than selling and choosing sector ETFs or buying XMAG.
I wonder, in the spirit of mean reversion, how adding more to the lagging sector from the leading would affect results. Sector cap sizes are vastly different, so some reasonable adjustments must be assumed
Thanks for the comment/question. It wouldn't have worked very well, as the worst performing sector has often subsequently lagged the S&P when you compare excess returns before/after the decade it ranked last. That is, mean reversion hasn't shown up there, or at least not consistently enough.
How about a bottom line? Are we supposed to slice and dice and guess? My takeaway is to own an S&P or Total US market ETF along with a Treasury ladder or total bond ETF and total international ETF. Rebalance annually. Do well. Sleep well.
Fair question. The very last bullet point was meant to address the elephant in the room question, ie., should I ditch the index I'm tracking that doesn't throw the leading sector out. (Answer: No.) That said, it still seems noteworthy that something as simple as tossing the leading sector could have burnished returns.
Thank you! Great post. It's definitely interesting to see what happens if you got rid of that top sector, but the rest becomes a giant guessing game. Granted, the market is so concentrated in the leading sector now I'm tempted to buy a little EQWL. But 4 of the Mag 7 trailed the S&P this year and we had good returns, so maybe the tech sector is already rotating out of the top spot while other sectors in the 493 pick up the slack. That's what I'm thinking and why I'm just holding my VTI rather than selling and choosing sector ETFs or buying XMAG.
I wonder, in the spirit of mean reversion, how adding more to the lagging sector from the leading would affect results. Sector cap sizes are vastly different, so some reasonable adjustments must be assumed
Thanks for the comment/question. It wouldn't have worked very well, as the worst performing sector has often subsequently lagged the S&P when you compare excess returns before/after the decade it ranked last. That is, mean reversion hasn't shown up there, or at least not consistently enough.