Super Sectors: How to outsmart the
market using sector rotation and ETFs
By John Nyardi
John Wiley & Sons, Inc.
$49.95; 264 pages
The purpose of this book is to offer investors and traders a practical investing methodology using exchange-traded fund (ETF) sector rotation to profit in bull markets, avoid future bear markets and to protect their capital. The author starts with a brief discussion of the devastation caused by past bear markets and why buy-and-hold is a fairy tale that is the “most dangerous and damaging piece of advice ever given to investors across the globe.” Then he reviews additional fairy tales including: Asset allocation; dollar-cost averaging; market rises 8% a year, and sell the leaders and buy the laggards. These are quickly dispatched to the garbage heap as unworkable and flawed.
After analyzing the investment universe, Nyardi concludes that ETFs are the best vehicles for traders and investors because of their compelling characteristics compared to those of stocks or mutual funds. He then provides brief comments on ETF history, types and sectors, as well as commentary on currency and currency exchange-traded notes.
The author’s main thrust is that ETF sector rotation offers investors a viable way to profit from the stock market in all market conditions because there is always a bull market somewhere. He succinctly covers the traditional sector rotation approach focusing on nine S&P industry sectors that follow the business cycle compared to the new view that encompasses many other ETFs such as commodities, international, precious metals and currencies that typically are non-correlated to market indexes. He believes that with the changing financial landscape and global equity markets open 24 hours a day, the traditional view of sector rotation will no longer work.
Based on his research, Nyardi highlights five sectors that he believes offer tremendous opportunity to investors in the years ahead: Asia, energy, healthcare, technology and financials. Interestingly, the author does not provide a potential listing of recommended ETFs in any of these sectors. The reader is left to his own resources to select appropriate ETFs.
The author provides a methodology for scoring various sector ETFs to determine when to enter a trade. His five component signals include: A P&F chart buy signal; P&F trend and price objective; daily and weekly MACD signals; RSI overbought and oversold levels, and relative strength price comparison. Nyardi did not provide any backtesting to support the selection of these criteria, so the reader needs to perform his/her own due diligence.
Areas that are not addressed include how to construct an ETF portfolio, the number of ETFs to have in the portfolio and how to select the best ETFs based on relative strength charts (because only one ETF is placed on a chart with the index at a time).
Overall, the reader will gain a perspective of the importance of using a specific rule-based investing methodology, the importance of properly timing ETF entry and exits, the necessity of staying with the trend and the benefit of investing with the strongest ETF sectors during different market conditions. Self-directed investors have been given a viable investing approach that will provide more acceptable returns than buy-and-hold with less risk.
Leslie N. Masonson is the author of “Buy – DON’T Hold: Investing with ETFs Using Relative Strength to Increase Returns with Less Risk” and “All about Market Timing.” Reach him at email@example.com.