Equity Markets - Sector Rotation Strategies

  • 16 Apr 2014
  • By Richard Co and John Labuszewski
  • Topics: Equity Index

CME Group’s Select Sector Index Futures Offer Effective Tool for Portfolio Strategy

CME Group’s E-mini S&P Select Sector Stock Index futures offer an “efficacious and convenient tool” for asset managers seeking to put contrarian viewpoints to work and capitalize on anticipated shifts in health care, technology and other key U.S. industries.

Banks and other financial stocks slumped worse than most other categories in the wake of the mortgage crisis, but a potential recovery could pay off by buying E-mini futures linked to that sector, while selling, for example, a companion index based on industrial companies, CME Group analysts John Labuszewski and Richard Co propose.

"Thus, the asset manager effectively may ‘underweight’ industrials and ‘overweight’ financials relative to the benchmark against which his performance is measured – presumably the S&P 500," the analysts wrote. "This strategy utilizing futures spreads to shift resources from one sector to the next offers the advantage of leaving undisturbed the underlying equity investments weighted according to the benchmark."

In addition to financials and industrials, other sectors in CME Group’s product slate include consumer discretionary, consumer staples, energy, health care, materials, technology and utilities.

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