Sector Rotation Strategy: I Know First provides investment solutions for both individual and institutional investors, utilizing an advanced AI self-learning algorithm to gain a competitive advantage. We offer a personalized approach to our institutional clients, assisting them in their investment process based on their specific needs and preferences. For more details about I Know First solutions for institutional investors, please visit our website.

Sector Rotation Strategy: Selecting Stocks Portfolio from the Most Promising Sector

The following trading strategy was developed using I Know First’s AI Algorithm daily forecasts from January 1^st, 2020, to May 31^st, 2024, with a focus on S&P 500 stocks selected based on the signal filter. This strategy is available to our institutional clients: hedge funds, banks, and investment houses, as a tier 2 service on top of tier 1 (the daily forecast).

The strategy involves trading the Level 1 Sectors including broad segments of the economy, such as technology, healthcare, finance, and consumer goods to provide a high-level view of the market. A sector ETF is a pooled investment vehicle that invests specifically in the stocks and securities of a particular industry or sector (XLK – Technology, XLF – Finance).

Also, the strategy involves trading GICS level 2 ETFs based on the majority direction. While, the Level 1 Sectors include broad segments of the economy, such as technology, healthcare, finance, and consumer goods to provide a high-level view of the market. Level 2 Industries goes deep into specific industries. For example, within the technology sector (Level 1), you might find industries like semiconductors, software, and hardware. These industries offer a more detailed perspective on the market.

Firstly, we identify the most promising Level 1 Sector ETF and allocate 45% of our portfolio to 10 of the most predictable stocks, with a maximum exposure of 4.5% per stock. After that, we allocate another 45% of our portfolio among the top 40 most predictable remaining stocks from the same Level 1 Sector ETF, with a maximum exposure of 4.5% each. The last 10% of our portfolio is allocated to two Level 2 ETFs with the highest stock count based on the 40 most predictable stocks. We rebalance our strategy on a monthly basis.

The strategy provides a positive return of 218.03% which exceeded the S&P 500 return by 156.67%. Below we can notice the strategy behavior for each year.

The I Know First strategy has an impressive Sharpe ratio (which compares the return of an investment with its risk) of 1.06 and a Sortino ratio (which compares the return of an investment with its given level of downside risk) of 1.49.

I Know First Algorithm – Seeking the Key &  Generating Stock Market Forecast

The I Know First predictive algorithm is a successful attempt to discover the rules of the market that enable us to make accurate stock market forecasts. Taking advantage of artificial intelligence and machine learning and using insights of chaos theory and self-similarity (the fractals), the algorithmic system is able to predict the behavior of over 13,500 markets. The key principle of the algorithm lies in the fact that a stock’s price is a function of many factors interacting non-linearly. Therefore, it is advantageous to use elements of artificial neural networks and genetic algorithms. How does it work? At first, an analysis of inputs is performed, ranking them according to their significance in predicting the target stock price. Then multiple models are created and tested utilizing 15 years of historical data. Only the best-performing models are kept while the rest are rejected. Models are refined every day, as new data becomes available. As the algorithm is purely empirical and self-learning, there is no human bias in the models and the market forecast system adapts to the new reality every day while still following general historical rules.

Sector Rotation Strategy: Conclusion

I Know First offers investment solutions for institutional investors, leveraging our advanced self-learning algorithm to gain a competitive advantage. We provide a personalized approach for our institutional clients, enhancing their investment process according to their specific needs and preferences. In this context, we have evaluated the performance of selecting stocks from the most promising sector portfolio during the period from January 1^st, 2020, to May 31^th, 2024.

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Please note-for trading decisions use the most recent forecast.