INTERMEDIATE TRAINING
Fit Tip # 4:  Sector Rotation

Using a little known fact about Mutual Funds can have a dramatic impact on their growth.

Canadian and US funds are ranked into four distinct sub-categories by the independent fund ranking firm, Barra. (Check out their web site at barra.com) Their rankings are: Large Cap Value, Large Cap Growth, Small Cap Value and Small Cap Growth. These rankings are independent of how the large fund companies rank their funds and are based on independent testing. In fact, some funds are called "Growth" by the fund companies, when they are value. The name of the fund doesn't always tell you what they are.

Part of my fund ranking system utilizes this characteristic. The chart below shows how the different categories performed over the past 10 years. This explains why your funds can be going down when the market is going up. In the year 2000, for instance, Large Cap Value funds gained 32%, while Large Cap Growth declined 6% (Think Nortel).

When I use this, with FIT Tip 6, I often rebalance my client portfolios two or three times a year. I have found that this keeps us ahead of the indexes in Bull markets and retains capital in Bear markets. My clients are positioned for growth when the market is going down, because they do not have to make up the same amount of capital as others who followed traditional "Buy and Hold" strategies.