When you say business cycle, are we talking ABCT?

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Feb 14Liked by Darin Tuttle

I mostly agree with this, but I tend to think it would be better to look at equal weighting each sector with a slight tilt towards 2 sectors you think would do well each year. Additionally, you can use some quantitative metrics (fundamental and technical) to drive which sector you allocate slightly more to. You marry this with determining where consensus in general is for the business cycle. Using this as a guide for what not to buy, rather than to buy, yes this will lead to you potentially being early, but willing to stay overweight slightly to those sectors you think will do best in the next phase of the business cycle I think could result in more frequent success.

I actually did a Sector Equal Weight portfolio back-test with a quarterly rebalance and it crushed the S&P500 over nearly every horizon I could measure in Ycharts. This portfolio would rebalance quarterly to maintain an equal percentage across each sector SPDR ETF. Important to note: I excluded XLC and XLRE due to their recent inception date so i could get more historical data. Now what I will say the major drawback in this is the fact that many of the SPDR Sector ETF's often have over 40% of their portfolios invested in two - four companies. XLY is like 43% TSLA and AMZN. FWIW, I validated this by Equal Weighting Invesco's EW sector ETF's and yes got much better diversification, but much worse long term performance and annual standard deviation.... The other wrinkle here is the creation of new sectors or the movement/recategorization of some individual stocks, some of them massive, into other sectors. Once again, why I believe its imperative to have a little each year in every sector.

Would love to have a conversation about this in more detail if you are open to it. I still standby the fact that there are thoughtful ways to do this and one of them is making sure you have at least some money in every sector each year as to not create a situation where you are precisely wrong.

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