Estimating Active Equity Fund Sector Allocations for Rotation
Summary
The report groups stocks into seven broad sleeves, including financials, technology and media, consumer, cyclical, manufacturing, healthcare, and Hong Kong equities. It examines active domestic equity fund allocations, noting shifts away from consumer stocks and toward cyclical sectors and Hong Kong equities from 2021, alongside longer-running manufacturing allocation changes. To estimate exposures, it adapts return-based regression: fund returns are regressed against sector indices in a two-step process to infer sector weights.
The proposed monthly rotation strategy aggregates estimated fund exposures using each fund’s equity size, then buys the two sectors with the largest month-over-month increases in allocation for the following month. The report says this approach outperformed an equal-weight average of the seven sectors, reporting annualized returns of 23.66% versus 18.45%. These are reported historical results; the excerpt does not specify the full test period, trading costs, or other validation details, so they do not establish future performance.
Key ideas
- The report classifies equities into seven broad sector groups, including Hong Kong stocks.
- A two-step return regression is used to estimate active funds’ sector exposures.
- Fund size weights the aggregation of estimated holdings across the active fund universe.
- Each month, the strategy selects the two sectors with the largest allocation increases for the next month.
- The reported historical annualized return exceeds the sector-average benchmark, but the excerpt omits key test details.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.