Sector Fund System
Objective:
To
generate higher returns with lower risk than buying and holding an
S&P
500 Index fund.
Strategy:
Sector funds invest in the stocks of various industry groups
within a single market sector. The Sector Fund System’s
strategy is to be invested in one or more of these highly concentrated
sector funds when the market is rising and either in a money
market account or in a reverse stock fund when the market is
falling.
How the system works:
The core of the system is our market timing model. When
the market timing model generates a “Buy” signal, a second ranking
program is run which identifies the top performing sector funds. Client
accounts are then invested in one or more of the top-ranked Rydex
Sector funds. These include:
|
• Banking |
• Basic Materials |
• Biotechnology |
• Consumer Products |
• Electronics |
|
• Energy |
• Energy Services |
• Financial Services |
• Health Care |
• Internet |
|
• Leisure |
• Precious Metals |
• Retailing |
• Technology |
• Telecommunications |
|
• Transportation |
• Utilities |
Monitoring:
During a “Buy” signal, all the funds in which we’ve invested
are monitored on a daily basis. If at any time any of the sectors
we don’t own rises in rank higher than one that we do own, we’ll
rotate out of the fund we own and into the new higher ranked
fund. Also, if at any time any of the funds we hold declines
by a pre-determined percentage (anywhere from 5% to 10%) that
fund will be sold and the proceeds moved to the money market
fund until a new top ranked fund is identified. This “stop loss” system
helps us either lock in profits or minimize losses. When the
market timing model generates a “Sell” signal, any sector funds
that haven’t already been sold by the stop loss system will be
moved to a money market fund to await the next “Buy” signal.
Other Considerations:
When it is fully invested
the system will generally hold two or three sector funds at a
time (though that number can change
as market conditions warrant.) In the past, there have been
2-3 switches (round trips) from the market timing model each
year. Implementation of the system requires that an investor
be prepared to make between four and fifteen trades annually. This
means that in non-tax advantaged accounts, all gains will be
taxed as current income. There are no switching costs when the
program is implemented directly with Rydex.
|
Average Annual Total Return |
|||
|
Through 2002 |
Sector Fund System1 |
S&P 5002 |
Nasdaq 1002 |
|
One Year |
10.8% |
-22.1% |
-37.5% |
|
Three Years |
16.9% |
-14.5% |
-35.7% |
|
Five Years |
26.0% |
-0.6% |
-0.1% |
|
Inception (1/2/96) |
18.0% |
6.9% |
8.0% |
|
5 Year Risk / Reward Statistics |
|||
|
Through 2002 |
Sector Fund System1 |
S&P 5002 |
Nasdaq 1002 |
|
5 Year Return |
26.0% |
-0.6% |
-0.1% |
|
Maximum Drawdown |
-17.4% |
-46.3% |
-82.6% |
|
Ulcer Index |
6.9% |
-19.1% |
-45.0% |
|
Risk Adjusted Return |
3.0% |
-0.3% |
-0.1% |
|
Trades per Year |
≈12 |
na |
na |
All tables, text and images displayed herein
is Copyright (1995-2003) by:
Windsor Financial Advisors, Inc.
P.O. Box 7936
Princeton, NJ 08543
(609) 720-0999
Member of windsornet