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Welcome! This guide will walk you through how to implement the Sector Rotation Model (SRM) in your investment account. Whether you’re new to the model or just need a refresher, we’ll cover everything you need to know – from understanding the monthly sector recommendations to updating your portfolio allocations in your brokerage or investment platform.
Applying the Sector Rotation Model to your investment account is straightforward and takes just a few minutes:
If you’re comfortable managing your portfolio, the process will take less than five minutes. New to sector-based investing? No problem—keep reading for a detailed step-by-step guide to using the Sector Rotation Model effectively.
The Sector Rotation Model (SRM) uses a tactical, sector-based investment strategy designed to boost your portfolio’s performance while managing risk. By reallocating investments into the strongest-performing sectors each month, the SRM capitalizes on market trends, making it an excellent choice for tax-advantaged accounts like IRAs, Roth IRAs, and more.
The SRM is updated monthly, with new recommendations posted on the first trading day of each month. These updates, available exclusively to premium members, provide clear and actionable guidance for positioning your portfolio in the most promising sectors for the month ahead.
You can access the latest recommendations on the Current Recommendations page, conveniently located at the top of the homepage after logging in. To ensure you never miss an update, we send out monthly email notifications with direct links to the latest recommendations. Acting quickly to implement these updates each month is essential for maximizing the benefits of the SRM.
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The Sector Rotation Model (SRM) employs a data-driven strategy to help you maximize your portfolio’s potential. Each month, the model evaluates the performance of all 11 sectors within the S&P 500, analyzing broader market and economic trends to identify the top-performing sectors.
This comprehensive approach ensures your investments are dynamically allocated to the sectors with the greatest potential for growth, keeping your portfolio aligned with evolving market conditions.
Unlike traditional strategies that focus on static, broad-market investments, the SRM is designed for flexibility and precision. It works seamlessly in tax-advantaged accounts, such as IRAs and Roth IRAs, as well as general investment accounts. By targeting specific sectors rather than broad asset classes, the SRM offers a tactical approach to achieving higher returns in both bullish and bearish markets.
The SRM relies on sector-specific ETFs that represent the 11 major sectors of the S&P 500. These ETFs are carefully chosen for their ability to closely track their respective sectors, making it easy for investors to implement the model’s recommendations on virtually any investment platform.
Below is a list of the 11 sector funds used by the model:
| Sector Rotation Model (SRM) Investment Options | ||
|---|---|---|
| ETF | Description | Sector |
| XLY | Consumer Discretionary Select Sector SPDR Fund | Consumer Discretionary |
| XLP | Consumer Staples Select Sector SPDR Fund | Consumer Staples |
| XLE | Energy Select Sector SPDR Fund | Energy |
| XLF | Financial Select Sector SPDR Fund | Financials |
| XLV | Health Care Select Sector SPDR Fund | Health Care |
| XLI | Industrial Select Sector SPDR Fund | Industrials |
| XLB | Materials Select Sector SPDR Fund | Materials |
| XLK | Technology Select Sector SPDR Fund | Technology |
| XLU | Utilities Select Sector SPDR Fund | Utilities |
| XLRE | Real Estate Select Sector SPDR Fund | Real Estate |
| XLC | Communication Services Select Sector SPDR Fund | Communication Services |
| Cash and Cash Equivalents | Cash | |
Regardless of which type of account you’re using, you should be able to easily purchase these ETFs directly from any online brokerage or investment platform.
The Sector Rotation Model (SRM) works by investing 100% of the portfolio in the top-ranked sector within the S&P 500 at any given time. This approach is key to maximizing returns, as different sectors perform better during different phases of the economic cycle.
By concentrating investments in the sector with the highest potential for growth, the SRM eliminates the drag caused by exposure to underperforming sectors, ensuring your portfolio is always optimized for performance.
This focused strategy allows the SRM to deliver impressive returns while maintaining simplicity. Some users, however, may prefer to diversify across the top two or three ranked sectors instead of concentrating on just one. This option is addressed in detail in the Additional Customization Options section below, providing flexibility to tailor the strategy to individual preferences or risk tolerance.
When you log in to view the SRM recommendations, you’ll see a section titled Current SRM Selections, accompanied by a table that highlights the top-ranked sector and its corresponding allocation. Below is an example of the table format; please note that the sectors displayed are for illustrative purposes only.
| Current SRM Selection | ||
|---|---|---|
| Rank | Fund | Description |
| 1 | XLU | Utilities Select Sector SPDR Fund |
For those who prefer to invest across the top two or three ranked sectors (as discussed in the Additional Customization Options section below), we also provide a Monthly Ranking Table. This table ranks all 11 sectors within the SRM, allowing you to make more tailored allocation decisions if desired. Here’s an example:
| Complete SRM Monthly Ranking | ||
|---|---|---|
| Rank | Fund | Sector |
| 1 | XLU | Utilities |
| 2 | XLRE | Real Estate |
| 3 | XLC | Communication Services |
| 4 | XLF | Financials |
| 5 | XLK | Technology |
| 6 | XLY | Consumer Discretionary |
| 7 | XLI | Industrials |
| 8 | XLP | Consumer Staples |
| 9 | XLB | Materials |
| 10 | XLV | Health Care |
| 11 | XLE | Energy |
These tables contain all the information you need to implement the SRM’s recommendations in your investment account. In the following section, we’ll guide you through the step-by-step process of updating your portfolio allocations using your brokerage or investment platform.
Once you’ve accessed the Sector Rotation Model (SRM) recommendations, you’re ready to apply the updates to your investment account. The simplest way to follow the SRM is to implement its recommendations exactly, as it rotates between the 11 sector exchange-traded funds (ETFs).
The process for making trades is simple and straightforward:
The SRM can remain invested in a single sector for multiple months, but it’s important to monitor the model’s updates regularly. If the recommendation doesn’t change from one month to the next, no further action is needed.
By consistently following the SRM’s monthly updates – and leveraging the ARM when the model moves to cash – you’ll ensure your portfolio remains aligned with the strongest-performing sectors or asset classes, maximizing growth potential while managing risk.
Understand Sector Dynamics: Take some time to familiarize yourself with the 11 sectors tracked by the SRM. Understanding the industries and companies within these sectors can help you better appreciate how the model’s recommendations align with broader market trends.
Execute Trades Sequentially: If you’re using a brokerage account, remember to sell your existing sector holdings before purchasing the new recommended sector ETF. Completing the sale transaction first ensures a smooth and accurate transition to the new allocation.
Follow Monthly Updates Consistently: Regularly implementing the SRM’s recommendations ensures your portfolio remains aligned with the strongest-performing sectors. Staying consistent with the model’s updates is key to maximizing its potential benefits.
The historical backtested performance of the SRM reflects strict adherence to the model’s strategy – investing 100% of the portfolio in the top-ranked sector and reallocating based on the monthly recommendations. While this focused approach has delivered outstanding results, we understand that some investors may feel hesitant about concentrating their portfolio in a single sector.
If that’s the case, here are two alternative approaches to get started:
These options allow you to tailor the SRM to your preferences and risk tolerance while still benefiting from its powerful sector-based strategy.
While the Sector Rotation Model (SRM) is a powerful tool for pursuing higher returns, it should not be used for your entire portfolio. Instead, the SRM is designed as a supplement to a broader Complete Portfolio Management Solution, such as the 401(k) Allocation Model, TSP Allocation Model, or Asset Rotation Model (ARM).
These models are specifically designed to manage the bulk of your assets by dynamically switching between asset classes like stocks and bonds, providing a more balanced approach to growth and risk management.
The SRM, on the other hand, focuses solely on sector rotation within the stock market, making it a valuable addition to a well-rounded investment strategy. It allows you to target higher returns by investing in the strongest-performing sectors each month, but it is best utilized with a portion of your portfolio rather than as a standalone solution.
If you’re intent on using the model in isolation, you can reduce risk in two ways:
By integrating the SRM in this manner, you can benefit from its tactical sector-based approach while ensuring your overall portfolio remains diversified and well-positioned to navigate all market conditions.
To provide greater flexibility, the Current Recommendations page for the Sector Rotation Model (SRM) includes an additional table that ranks all 11 sectors based on their relative performance. This table is especially useful for users who may wish to customize their allocations to better align with their personal preferences or financial goals.
The Complete Sector Ranking Table uses a straightforward color-coding system to highlight the status of each sector.
| Key | |
|---|---|
| Green | Showing positive price performance and acceptable as an investment |
| Yellow | Acceptable as an investment but significantly better alternatives exist |
| Red | Not recommended at this time |
Sectors highlighted in green are considered strong performers and suitable investments. However, for optimal results, we recommend following the SRM’s top-ranked sector as identified in the main recommendations.
It’s important to note that deviating from the SRM’s recommendations may result in performance outcomes that differ from those displayed on our site. All performance metrics and charts are based on strict adherence to the model’s standard allocation methodology without modifications or diversification outside the model’s guidance.
This concludes the SRM tutorial.
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The information provided here is for informational purposes only. Model returns do not reflect any management fees, transaction costs or expenses. Investing involves a great deal of risk, including the loss of all or a portion of your investment. Nothing contained herein should be construed as a warranty of investment results. Past performance is not an indication of future results. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. Model Investing maintains positions in the funds discussed within this site according to model recommendations.
