Portfolio Investment Strategies With Select Sector Funds
Wednesday, July 28th, 2010hETFund submits:
State Street’s Select Sector Funds represent the nine segments of the S&P 500 (ETF SPY). The goal of this strategy was simple in that we sought to offer a portfolio optimization technique with these segments instead of only investing in the broad market. The S&P 500 weights for these nine Select Sector Funds are in the table below.
For example, if there is a view that the discretionary consumer sector is overvalued, then there is a way in which to express this investment opinion. An unconstrained hedge fund could do this with a short sale of stock(s) from the Consumer Discretionary SPDR and a long position in stock(s) from a sector with the potential to outperform. This technique may be too complex in a traditional wrap account or IRA. Therefore an alternative approach in a long only account is to replace the consumer sector with the other eight sectors. The decision then rests on whether or not to hold the consumer sector weighting – 10.1% – in cash with a constant weight in the other sectors, or to over weight the other sectors by fully investing cash.
