April 10, 2023
Leveraging cutting edge approaches that track narrative changes in real time, sentiment analysis may have unlocked a pathway towards profitable sector rotation strategies.
The end of 2022 saw record figures in traditional benchmarks: the S&P500® was 19% below its year start with almost 25% volatility. Investors are struggling to understand the market cycle in the face of a loosening labor market and potential recession. Sentiment analysis, using cutting-edge approaches to track narrative changes in real time, provides a pathway to sector rotation that can be profitable.
The key to successful sector rotation strategies is understanding which industries anticipate the next stage and which ones lag. Portfolio managers can capture more momentum by buying stocks from sectors that rise first, then rebalancing to those that lag. At a practical level though, tracking sectors is challenging because real-time economic data can be difficult to obtain. Sentiment analysis offers a tangible option.
RavenPack research has established that its data can help to build effective sector rotation strategies. In particular it enables portfolio managers to:
Leverage earnings sentiment to inform sector allocation and rebalancing strategies.
Build sector rotation strategies using earnings news and macroeconomic data.
Boost equity sector rotation with bonds to increase Sharpe Ratio.
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