Why moving your money between sectors makes perfect sense

Before we move on to how we identify trends, let’s just look at why it makes perfect sense to move your money between market sectors.

The simple reason is: at any one time, some sectors are doing better than others.

And here’s the evidence. This is a table of the average performance of each fund sector (grouped into the five Saltydog groups) over the past seven years: 

IA Sector	Annual Returns (%)
	2009	2010	2011	2012	2013	2014	2015
Safe Haven
Money Market	0.95	0.32	0.03	0.49	0.23	0.29	0.24
Short Term Money Market	0.62	0.17	0.28	0.23	0.14	0.06	0.14
Slow Ahead
£ Strategic Bond	22.66	8.71	3.91	14.39	3.52	6.92	0.38
£ Corporate Bond	14.67	7.89	5.33	14.29	1.34	10.63	0.22
£ High Yield	47.92	12.29	-1.82	20.39	8.02	2.02	0.02
UK Gilts	-2.65	6.42	16.16	2.04	-4.90	14.92	0.00
Global Bonds	6.66	8.89	2.44	7.98	-2.54	4.87	-1.14
UK Index Linked Gilts	5.69	8.09	21.60	0.35	0.05	18.66	-1.26
Global Emerging Markets Bond	13.93	16.03	0.53	12.58	-9.21	3.42	-5.15
Steady as She Goes
UK Equity Income	23.06	14.52	-2.43	14.78	25.79	3.62	6.65
UK Equity & Bond Income	18.90	12.30	-0.81	12.75	17.32	4.55	3.99
Global	23.04	15.85	-9.34	9.66	21.79	7.05	2.87
Mixed Investment 40-85% Shares	20.40	12.45	-5.42	10.16	14.77	4.99	2.83
Global Equity Income	18.10	15.35	-1.97	11.03	20.27	7.07	2.57
Flexible Investment	24.75	14.86	-8.53	10.34	14.82	4.83	2.09
Mixed Investment 20-60% Shares	16.32	9.08	-1.62	8.69	9.21	5.04	1.51
Mixed Investment 0-35% Shares	11.82	7.76	1.38	7.02	4.81	5.31	0.86
Full Steam Ahead - Developed
European Smaller Companies	36.15	25.96	-18.37	22.20	30.72	-1.08	19.15
Japanese Smaller Companies	2.66	22.74	-6.77	5.57	35.78	5.18	17.22
Japan	-3.50	19.17	-11.32	3.29	26.11	0.43	16.10
UK Smaller Companies	51.60	30.90	-8.89	22.70	37.59	-1.58	14.94
Europe Excluding UK	19.46	8.83	-15.41	19.40	26.30	-0.94	9.37
Europe Including UK	22.73	12.26	-12.98	17.98	25.94	0.28	8.31
Property	14.43	12.63	-5.26	12.82	5.64	13.08	5.55
UK All Companies	30.55	17.51	-6.79	15.39	26.45	0.86	5.01
North America	18.53	17.25	-2.03	7.46	30.61	17.77	4.60
North American Smaller Companies	24.52	32.85	-4.15	8.64	36.67	9.83	1.39
Full Steam Ahead - Emerging
Technology & Telecommunications	45.19	23.28	-3.63	8.61	27.51	12.82	8.00
Asia Pacific Including Japan	28.84	20.96	-16.02	11.04	10.17	5.33	5.21
China/Greater China	56.52	15.09	-21.83	13.66	9.26	9.40	1.48
Asia Pacific Excluding Japan	53.83	22.42	-16.31	16.64	1.89	9.73	-2.81
Global Emerging Markets	60.27	23.68	-19.12	13.60	-3.76	3.43	-9.35

Data source: Morningstar

As you can see, there is an enormous variation in performance.

Amongst all the different sectors and years, the highest individual gain was Global Emerging Markets in 2009, which went up 60% in one year.

And the biggest loss was China/Greater China, which dropped by -22% in 2011.

Not surprisingly, both these sectors are in our most volatile group: Full Steam Ahead, Emerging Markets.

With the least volatile group, Safe Haven, the gains have been very consistent (and positive), but tiny.

But the main point to draw from this table is that a sector that does well one year may then perform not so well or badly the following year – especially in the more volatile groups.

In other words, if you want to optimise your investment performance, you want to move your money into the best-performing sectors at any one time.

Read next > The two indicators for moving your money: a trend & outperformance