Assets Moving Into Financials & Utilities Since Early-Mid July
Conclusion, Investment Implications, Strategy

This week, the SEAF Model again retains its recent overweight bias in cyclical Financials (XLF, since July 8th) and defensive Utilities (XLU, since 7/15) and adds cyclical Real Estate (XLRE) to the model’s top-ranked sectors.  Meanwhile, market-leading Technology (XLK) is the SEAF Model’s third-worst-ranked sector for the third consecutive week while showing the most aggressive outflows of all sectors in the Trading (weekly) and Tactical (monthly) time frames for the third consecutive week.

Year-to-date, only Utilities (XLU) and Communication Services (XLC) have outperformed the S&P 500 (SPY), by 5.1% and 4.5%.  Also year-to-date, the SEAF Model is outperforming SPY by 0.4%.

Separately, our ETF Trade Ideas, which are selected on the basis of 1) positive price trends, 2) relative outperformance versus the benchmark S&P 500, 3) expanding investor assets, and 4) risk versus reward, currently favor the Real Estate Select Sector SPDR Fund (XLRE) and the iShares 20+ Year Treeasury Bond ETF (TLT). 

Beyond The SEAF Model Video: This Week’s Sector Themes

This weekly video by Jack Kosar, MSF, goes into more detail on the latest SEAF Model data via a heat map that shows where sector-related assets are going, and where they are leaving, in the 11 Sector SPDR ETFs, and also dissects our SEAF “Rainbow Charts” which display the past 12 months of Favored, Neutral, or Avoid rankings in several key market sectors. 

From The Video: This Week’s Major Themes
  • Money continues to aggressively move into Utilities and Real Estate in All time frames.
  • Money remains in Health Care in All time frames.
  • Money continues to aggressively leave Technology and Consumer Discretionary in All time frames.
The SEAF Model: Current Signals & Related Performance

Editor’s Note:  These are the latest specific trading signals generated by our SEAF Model, which also includes a rules-based money management component.  The backtested performance data below is based on trading a predetermined amount of assets with an equal allocation of those assets across the top three Rankings.  The model is updated once per week, on the weekend, and any rebalancing takes place on the market opening the following Monday morning.  This is the recommended way to invest via the SEAF Model.  Contact us for any additional clarification.

In the SEAF Model Graphic below, the Ranking column sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading (weekly), Tactical (monthly), and Strategic (quarterly) categories, from largest inflows to largest outflows.  The premise of the model is to invest in the sectors that the money is going into and to avoid the sectors the money is coming out of.  

The lower the Ranking number, the stronger the trend of asset flows going into that sector.  The top two sectors in each category, according to a positive change in inflows, are highlighted in green.  The top two sectors in each category, according to a negative change in outflows, are highlighted in red.

Table 1

Click the table to make it larger

Synopsis:  The latest data indicate multi-timeframe trends of asset inflows into Financials and Utilities.  This is where the money is currently going in the sector space.  The latest data also indicate multi-timeframe trends of asset outflows from Technology and Consumer Discretionary.  This is where the money is coming from.

SEAF Model Individual Sector Charts (“Rainbow Charts”)

The charts below display the weekly SEAF Model Ranking Scores over the previous 12 months for the strongest and weakest sectors through March 7th.  The line in the upper panel displays these weekly scores within the context of being Favored (3-15, green), Neutral (16-24, yellow), or Avoid (25-33, red) and also displays the trend of asset flows as the money moves in and out of these sectors.  The lower panel plots the corresponding weekly relative performance chart of that particular sector versus the S&P 500 (SPY).

Utilities: XLU 

Defensive Utilities (XLU) is currently the SEAF Model’s best-ranked sector with a Ranking score of 4. According to the SEAF Model, Utilities have been one of the three top-ranked sectors of the S&P 500 for the past four weeks beginning July 15th and have outperformed the benchmark S&P 500 (SPY) by 14% during that period, as shown in the lower pane of Chart 1 below.  The longer Utilities retains its Favored ranking, the more likely XLU’s recent trend of relative outperformance versus SPY is likely to continue.

Chart 1

Real Estate: XLRE

Cyclical Real Estate is the SEAF Model’s second-ranked sector this week with a Ranking score of 10.  Chart 2 below shows that XLRE has outperformed the S&P 500 (SPY) by 8% since Jly 23rd, which is when Real Estate first moved to Favored status according to the SEAF Model.  Real Estate has also been among the top four SEAF rankings for the past five weeks beginning Jly 8th.  As long as XLRE remains among the top three-ranked sectors, it will remain on a buy/overweight signal according to SEAF.

Chart 2

Financials: XLF 

Cyclical Financials (XLF) is currently the SEAF Model’s third-best-ranked sector, tied with Real Estate with a Ranking score of 10.  Financials has also been one of the three best-ranked sectors of the S&P 50 according to the SEAF Model for the past five weeks beginning Jly 8th.  The lower panel of Chart 4 below shows that XLF has outperformed the S&P 500 (SPY) by 6% during this period.  The longer Financials retains its Favored ranking, the more likely that its recent trend of relative outperformance versus SPY is likely to continue.

Chart 3

Energy: XLE

Economically sensitive Energy is again the SEAF Model’s third-worst ranked sector this week with a Ranking score of 23.  More importantly, Energy has also been one of the three worst-ranked sectors of the S&P 50 according to the SEAF Model for eight of the past nine weeks beginning Jun 8th.  Chart 4 below shows that Energy has been on an Avoid or Neutral status since Jun 5th (upper panel) while XLE has coincidentally underperformed the S&P 500 (SPY) by 6%.  Even though Energy was the fourth-best-ranked sector last week on a Trading (weekly) basis, indicating some very short-term buying interest by investors. it would take a more sustained flow of assets that moves Energy into a much better ranking in the Tactical (monthly) time period to suggest a potential emerging long/overweight opportunity.

Chart 4

Sector & Industry Group Trade Ideas: Trend, Relative Performance, Asset Flows

The ETF name and ticker, the date the idea was initiated, the price target, and the price that the idea remains valid above (or valid below if a short idea) are listed for each idea.  The current performance of the idea, both outright and relative to the S&P 500, is also listed. The ideas are listed chronologically, with the newest ideas on top and new ideas or changes highlighted in yellow.  These ideas are intended to identify short-term trading opportunities rather than longer-term investments.

Table 2

More information about the trading ideas presented in this table, including the quantitative performance of these ideas over the past 16 months, is available by Clicking Here.