Taylor said, “In times of rapid sector rotation, rotating corrections, and uncertainty, one of the best strategies is to stay active. When this is exploited, the volatility can ensure equal opportunities. The amount of momentum in the system is likely to take this rally longer than expected, but it won’t go as smoothly as it did for most of last year. Buckle up and get ready for the ride. “
This rotation was fast and fierce, which made security selection more important and harder to make money from bonds. For example, technology stocks started the year on fire, but after peaking in mid-February, the sector fell out of favor. Taylor said the trending ARKK funds – the flagships for this tech theme – were down 30% from their peak in just a few weeks.
Many blame the bond market. When returns rise with economic optimism, we see a return of the “value” factor, where investors pay for growth when growth is scarce. Given the unprecedented stimulus to the economy, many new segments of the market are seeing rapid growth in demand, causing a rotation towards cyclicals.
One of the winners was energy. Taylor stated, “For the first time in years, energy was the top performing sector for the S&P 500 this quarter. The sector was written off so badly that one of the oldest companies in North America, Exxon Mobil, was kicked out the Dow Jones Industrial Average last year.
“Don’t look now, but after years of energy investments have suffered, there are concerns that energy supplies will not be able to meet demand from pent-up families going on vacation this summer,” he said added to the fact that many E&P companies gained over 50% in the quarter. “