The 2 charts above are those of the consumer staples sector and the utilities sector. These are just 2 of the sectors that are traditionally considered “defensive” on the stock market. Bonds are also considered a defensive asset class. Interestingly, as the S&P500 broad market index reaches new highs, we are witnessing rotation out of the more “risk on” investment sectors and asset classes and into these “risk off” defensive sectors. Disclosure: we have a position in the XLP consumer staples sector ETF illustrated above.
The charts below are those of the biotech sector, and the Nasdaq composite. Note how these “risk on” sectors are falling pretty much in sync with the rapid rise in the defensive sectors. Very interesting, indeed.
This may suggest that my prognosis of a market correction in Q2 or Q3 is not too far off of being accurate. The markets are suggesting, through money flow into these lower risk sectors, that now is the time to become defensive.
In light of the growing potential for an interim correction within the bull market, we at ValueTrend have raised about 22% cash in our equity platform recently. We anticipate reducing this exposure further into May.
Investing in a rotational market
It is my strong belief that investors who have been enjoying the index-driven market returns over the past few years may not do so well as markets continue to rotate through sectors and asset classes. It is my opinion that the “easy money” has been made. You must be prepared to be much more proactive in rotating through stocks and sectors going forward. If you feel that you do not possess the expertise to follow such a strategy, perhaps you would like to explore having your portfolio managed through our services at ValueTrend. My associate Craig Aucoin and I would be happy to review your current portfolio. We’ll offer suggestions on improving your financial situation, and we’ll explain how we can manage your money as prudently as we do our existing ValueTrend clients. We manage family accounts that include RRSP’s, non-registered investments – as well as the usual assortment of TFSA’s and RESP’s. Our total family (husband/wife) asset minimum is $500,000. For more information, email us at [email protected] or [email protected], or call us toll free at 1-888-721-8736.