Sectors Allocation

A simple rotation across three US sectors, Technology, Energy and Financials, with cash as the alternative. Each week the model reviews the past year, holds the mix that has paid best for the risk taken, and trades only when the case for change is strong.

The aim is not to forecast sectors. It is to lean, by rule, on what has recently paid best for its risk, and to step back to cash when no mix has paid at all.

The building blocks

Three sector funds and cash. Nothing else is held.

Technology

XLK

US large-cap technology companies.

Energy

XLE

US oil, gas and energy services companies.

Financials

XLF

US banks, insurers and other financial companies.

Cash

Treasury bills

Held when no mix of the three sectors looks attractive.

How it works

The same three steps every week.

Step 1

Look back

Review the past year of returns of the three sectors, measured against what cash would have earned.

Step 2

Choose the mix

Pick the combination of Technology, Energy and Financials with the best return for the risk taken. If none has beaten cash, the answer is cash.

Step 3

Change only when it matters

Ignore small shifts. The portfolio is rebalanced only when the new mix is far enough from the current one, which keeps trading low.

What the history shows

Simulated from January 2000 to September 2026 on daily closes with dividends reinvested, after assumed trading costs. Log scale, both lines start at 100.

Sectors Allocation modelSPY

Simulated growth of 100 for the Sectors Allocation model and for SPY, January 2000 to September 2026, on a log scale. The model ends far above SPY. — A simulation, not a record of live trading. Costs are assumed at 0.10% of each amount traded.

13.5%Return per yearSPY: 8.3%

0.63Return per unit of risk (Sharpe)SPY: 0.41

−31%Worst fall from a peakSPY: −55%

Where the money sat

Share of the portfolio in each block over time. It is either fully invested or fully in cash; the mix between sectors changes when the evidence does.

Technology Energy Financials Cash

Weights of Technology, Energy, Financials and cash in the portfolio over time, January 2000 to September 2026. — The model spent about a tenth of the time in cash, mainly in 2001–03 and 2008–09, and rotated between the three sectors the rest of the time.

What to keep in mind

The three sectors were chosen with hindsight. A different set, or a longer list to choose from, could look better or worse.
A few episodes carry much of the result. The gap to SPY comes largely from the bear markets of 2001–02 and 2008, from 2020, and from the energy rally of 2022.
Cash is a blunt tool. It kept the model out of the 2008 fall, but it also came back late in 2009 and missed part of the rebound.
The settings matter. Shorter look-backs tested in the same way did not beat SPY once costs were counted.
It is a simulation. Real trading brings different prices, taxes and delays, and the rule’s exact settings shape the numbers shown here.

Sectors Allocation treats rotation as a rule rather than a view: a small set of building blocks, a simple test of what has worked lately, and a bias toward doing nothing unless the evidence changes.

For information and research purposes only. This is a hypothetical, back-tested simulation, not investment advice or a recommendation to buy or sell any security. Past performance does not predict future results.