S&P 500 sector selection strategy
Providing exposure to the S&P 500 Index through a value-based, macro- economic approach, this strategy aims to maintain lower than market volatility.
Sectors stances are determined by relative attractiveness, as well as characteristics that provide exposure to our forecast drivers of return. Through this process we seek to express our long-term macro-view, while also gaining exposure to longer term return factor The S&P 500 Index is a market index, is not managed, cannot be purchased and does not reflect the deduction of any fees. The volatility and performance of an index an investor will not be the same.
A factor-based foundation
Similar to smart-beta strategies, we begin by strategically determining sector weighting based on objective factors as opposed to market cap. We aim to avoid large allocations toward already large sectors of the Index potentially overvalued, and instead look to overweight exposure of factors such as value, dividend yield and low volatility. Long-term in scope, the goal is to enjoy the tailwind of these favorable factor exposures.
Adding a macro-overlay
This strategy is not strictly rule-based; instead, we leverage our macro-economic process to develop a long-term forecast aimed to protect the strategy from our determined macro-economic risks. This added overlay is constructed to provide manager discretion to help sidestep the typical pitfalls of a factor-based strategy, such as a value trap.
Some macro-economic sector considerations involved in sector positioning include:
- Sector share of GDP overtime
- The power of mean reversion
- Sector events with long-term implications
Mean reversion is a financial theory suggesting historical returns eventually revert to their long-term mean or average level.
Past performance does not guarantee future results. Performance results are calculated in US dollars and reflect reinvestment of dividends and other earnings. Periods greater than one year are annualized. Please refer to the GIPS presentation for additional details, important performance information and disclosures.
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