SectorQuant
425 Acoma Street
Denver, CO 80204
Phone: 303-820-3000
mail@sectorquant.com

SectorQuant Frequently Asked Questions

What/Who is Sectorquant? SectorQuant is a SEC Registered Investment Advisor. SectorQuant helps individuals, institutions and corporations achieve their financial goals (manage assets) by actively managing no-load mutual fund accounts to reduce risk and attempt to out perform the market.

How do you do that? Rather than attempt to guess the direction of the S&P 500 or make sense of what 9,000 individual stocks might do. Weekly SectorQuant ranks 200 industry groups and the 9 Style Boxes as defined by Morningstar. Sectorquant seeks to invest in industries with below average valuations relative to growth rates, strong support from the investment community, and the best stock price action, while avoiding the unattractive groups with negative price trends. When a group we own starts to show statistically significant under-performance we sell it. The SectorQuant performance track record is in its fifth year of achieving better return than the S&P 500 with less risk.* (see the SectorQuant Performance Track Record* for details)

In the investment management business industry groups are often referred to as Sectors and the ranking process is known as Quantitative screening ergo our name SectorQuant.

Is a sector rotation strategy the same as a market timing strategy? No! The difference between a trader (market timer) and an investor is investment time horizon. Advocates of long-term, buy and hold investing point out that the stock market has only proven to be a superior investment arena when viewed from a ten to twenty year perspective. Proponents of this philosophy offer slogans like "There is never a good time to invest for the short term, it’s always a good time to invest for the long term". Traders on the other hand believe they can only consistently produce trading profits by exploiting short-term market trends.

Market timers and traders tend to have investment horizons that span minutes to several days. Mutual fund market timing is not illegal but a fiduciary lapse occurs when a mutual fund documents in its prospectus the fund’s intention to serve only long-term investors, then allows a select investor or group of investors to execute short term strategies with their fund. Given that when new money is invested in a fund, the manager could require several days to invest those funds. Until invested, those funds typically get money market rates of return.

The abuse is the dilution of returns for the long-term investors by the mutual fund allowing the market timer. For example: in a single day two good news items come out of the technology industry (the Semiconductor Institute says this months book to bill ratio shot up and Intel announces they will handily beat next quarters sales and earnings estimates). If the ABC Technology Fund allows a market timer to buy and sell the fund in a three day time span with a 5% profit, that profit dilutes the return for all the long term holders of the ABC Technology Fund.

Sector rotation represents a third strategy or philosophy about investing in the stock market. A proponent of sector rotation points out that the stock market has a two hundred year history of sectors and investment styles rotating in and out of favor. These rotations typically have durations of one to five years. For example, small growth stocks dominated the early 1990s (1990-1994) with a mania occurring in 1991 and 1992 in the bio technology sector.

In the late 1990s (1995-1999) market leadership was held by large growth stock and the information technology sector with a mania in telecommunications and internet stocks. Then, these stocks became very overvalued relative to growth rates, producing a "bubble." During the bear market of 2000 through 2002, small and midsized value stocks outperformed with bull markets occurring in interest rate sensitive groups like home builders.

As a proponent of a sector rotation risk management approach SectorQuant is focused on avoiding and underweighting overvalued sectors relative to growth rates. Seeking investment horizons of three months to three years, the SectorQuant’s philosophy is distinct from both the market timing and the buy and hold approaches.

SectorQuant like most strategic money managers reserves the right to change its opinion about the market and adjust its investment accordingly at any time. But, typically SectorQuant seeks investment we believe will outperform the market over an investment horizon of three months to three years.

What about late trading? In 2003 the second fiduciary lapse that came to light in the mutual fund industry was "late trading". Late trading is illegal and occurs when an investor is allowed to enter or final clear an order after the 4PM Eastern Standard Time cut off for mutual orders in the United States. Since much company and industry news and information is released after market closure at 4PM EST, bending this rule gives the select few a distinct advantage. The fiduciary lapse is the same dilution of returns for the fund’s long-term investors as the market-timing scenario above. SectorQuant’s custodian and broker dealer is the Trust Company of America. Prior to the founding of SectorQuant, the Trust Company of America implemented policies of not accepting mutual fund buy or sell orders after 3:30 EST.

How do I know my money is safe, I’ve never heard of your firm? We are the investment advisor; the funds and cash are held at the Trust Company of America an FDIC Bank. Trust Company of America generates client statements and clients check their account daily on the Trust Company of America web site.

How long have you been in business? SectorQuant was founded in July of 2002, our partners have 50 years of combined industry experience. The SectorQuant strategy was developed in 1997 and the track record begins in August 1999.