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The Case for Rotating into (Select) Cyclical Sectors

By: ETFdb
As it turned out, the most recent Great (Sector) Rotation was short lived and perhaps not so great after all. But although defensive sectors are back to outperforming cyclical sectors amid June market volatility, I still believe there’s a strong case for preferring cyclicals over defensives, or at least select cyclicals [see The Cheapest ETF for Every Investment Objective]. There are three reasons to consider investing in cyclical sectors now. 1. Attractive Valuations. Defensive sectors continue to look overpriced. Investors searching for safety and yield have driven up the valuations of defensive companies. The three classic defensive sectors – healthcare, staples and utilities – are now trading at an average premium of around 20% to the broader market. By way of comparison, back in the fall of 2009, these three sectors were trading at an average discount of around 40% to the broader market. Current premiums seem unjustified considering that profitability is somewhat lower [...] Click here to read the original article on ETFdb.com. Related Posts: Daily ETF Roundup: Stocks End Week In The Red, IXC Slumps Alongside Energy Shares Energy ETFs: Watch Your Big Oil Weight Ultimate Guide To TDIV Tech ETFs: Watch Your Apple Weight ETF Insider: Stocks Hit 2012 Highs
As it turned out, the most recent Great (Sector) Rotation was short lived and perhaps not so great after all. But although defensive sectors are back to outperforming cyclical sectors amid June market volatility, I still believe there’s a strong case for preferring cyclicals over defensives, or at least select cyclicals [see The Cheapest ETF for Every Investment Objective]. There are three reasons to consider investing in cyclical sectors now. 1. Attractive Valuations. Defensive sectors continue to look overpriced. Investors searching for safety and yield have driven up the valuations of defensive companies. The three classic defensive sectors – healthcare, staples and utilities – are now trading at an average premium of around 20% to the broader market. By way of comparison, back in the fall of 2009, these three sectors were trading at an average discount of around 40% to the broader market. Current premiums seem unjustified considering that profitability is somewhat lower [...]

Click here to read the original article on ETFdb.com.

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