With so many exchange traded funds available now, it has become possible to maximize investment return by creating a strategy that rotates assets between exchange traded funds – such a technique can permit a trader to find sectors that are increasing in price no matter what the current market climate is.
Broad Market ETFs
The first ETFs that were introduced in the early 1990s track major market indexes such as the Dow Jones Industrial Index and the S&P 500. Other examples exist, such as QQQQ, which attempts to match the performance of the NASDAQ 100 Index. The NASDAQ 100 index is particularly volatile for a broad index because if includes a high portion of technology stocks.
Sector rotation strategies are now practicable because of the number of specific sector ETFs that are now available. Exchange Traded Funds cover almost every conceivable sector of the economy, from transportation, to energy and gold. These ETFs are specific enough to ensure that at least some of the market segments will move up no matter what phase of the economic cycle the economy is in. Thus, sector rotation strategies that can give great returns are now possible without investing in individual stocks.
Specific sectors can, of course, move dramatically within a short period of time – making selection of the proper exchange traded fund critical to any ETF rotation strategy.
Country or Region ETFs
ETFs in recent years have been created for very specific country indexes -there are country specific ETFs for countries (or regions) as small as Hong Kong, South Africa and even Belgium. These country specific ETFs allow the investor to devise a rotation strategy that moves into the “hot” region and then out again when another region is poised to outperform. The last type of ETF that is useful for creating sector rotation strategies are the country or region specific ETFs.
Opportunities exist to profit from ETF trading – the nimble trader can get great returns and minimize risks.
ETFs are available for just about every sector of the markets – aggressive traders and investors have a whole world of opportunities (literally) to profit from.