AI-Powered Sector Rotation Strategy: The Best Sector ETFs Portfolio Focusing on Technology


Sector Rotation: 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: The Best Sector ETFs Portfolio with Focusing on Technology

The following trading strategy was developed using I Know First’s AI Algorithm daily forecasts from January 1st, 2020, to May 31st, 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).

This is a long-only strategy. The strategy involves constructing a signal-weighted portfolio with monthly rebalancing, achieved through the implementation of the signal filter. In this strategy, we identify the Top 3 Level 1 ETF sectors based on signal values. The maximum allocation for each sector is 25%. In a case where there is the highest signal for XLK, we take XLK with an exposure of 40%. If we have uninvested money, we buy SPY. It is a monthly rebalancing strategy.

The strategy provides a positive return of 102.21% which exceeded the S&P 500 return by 40.85%. The strategy beats the S&P 500 in 32 of 57 periods or in 56% of cases. In Yellow, we can notice sectors where we have open positions for a time period.

sector rotation: sectors map
sector rotation: sectors map

Below we can notice the strategy behavior for each year. The I Know First strategy has a high Sharpe ratio (which compares the return of an investment with its risk) of 0.71 and a Sortino ratio (which compares the return of an investment with its given level of downside risk) of 0.87.

sector rotation: return
sector rotation: risks

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

Stock market predictions: Basic Principle of the "I Know First" Predictive Algorithm

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: 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 the best sector ETFs Portfolio focusing on technology strategy during the period from January 1st, 2020, to May 31th, 2024.

stock market predictions: I Know First Premium article

To subscribe today click here.

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