Sectoral churn effect: The benefit of proper positioning

Sectoral rotation and how to play with the positioning of monetary flows after pandemic damage to the economy. It is evident that the pandemic caused by COVID-19 has caused great economic damage to most sectors of the world economy. In the case of the financial markets, there has been a before and after for the main sectors.

Global confinement has served as a catalyst for sectors such as technology, which returned +42.2% in 2020. However, it has also greatly influenced sectors such as energy and financials to fall -50% and -21% respectively.

After the arrival of COVID-19, investors' attention was focused on the outcome of the U.S. elections, the global vaccination program, the huge fiscal aid packages from the different central banks and the reopening of the global economy. Considering this scenario, it could be understood that in view of the high expectations of a better global situation sooner than expected and after the first signs of a significant global economic reopening, the sectors that had been the hardest hit in the first three quarters of 2020 would rebound.

Sector Rotation

A few months ago, people began to talk about a phenomenon known as the sectoral rotation effect of monetary flows. This phenomenon consists of moving invested funds from one economic sector to another that was not being favored by the different market circumstances. To put it another way, this would be the same as withdrawing funds from a sector that has already benefited from market conditions to prevent it from being negatively affected in the short term in the future.

In the following images we can clearly observe the above mentioned sectorial rotation that started in November 2020.