Introduction

We have recently improved our SEAF Model table to include a new numerical system and a new chart to make the report more comprehensive, useful, and easy to understand.  Otherwise, the model’s actionable signals remain intact.

Specifically, we replaced the percentage values in the individual cells of the SEAF Model graphic with a simpler 1-11 ranking system that indicates exactly where the biggest asset inflows and outflows are going in each sector, in three different time frames: Trading (weekly), Tactical (monthly), and Strategic (quarterly).  The new accompanying chart splits these rankings into three quantitative categories to indicate, based on investor asset flows, which sectors to focus on for opportunities and which ones to avoid.

What Is The SEAF Model?

SEAF is an acronym for Sector ETF Asset Flows.  The SEAF Model was created to quantitatively identify long / overweight opportunities in US market sectors.  SEAF does this by “following the money” as it moves around the 11 Select Sector SPDR ETFs, which together comprise the S&P 500.  Following the movement of money identifies these opportunities sooner and more accurately because, with the SEAF Model, we can see the money moving before the trends this money movement creates become apparent.

How We Derive The SEAF Model Signals

In the SEAF Model Graphic, the top two sectors in each category according to percent change in inflows are highlighted in green and the top two sectors in each category according to percent change in outflows are highlighted in red.   The premise of the model is to invest in the sectors that the money is going to and to avoid the sectors that the money is leaving.  The SEAF Model buy/overweight signals are sectors that are one of the top two in positive percent change in inflows in multiple time periods.  There are also additional rules built into the model for money management purposes.

How To Interpret The New SEAF Graphic

The new SEAF graphic below is divided into 6 columns:

  1. Sector (Symbol): the 11 Select Sector SPDR ETFs.
  2. % through (closing date): the percentage of the S&P 500 that each of the 11 Sector SPDRs comprises through the closing date shown.
  3. Trading (week): the percentage change in investor asset flows over the past week, ranked from largest inflows (1) to largest outflows (11).
  4. Tactical (month): the percentage change in investor asset flows over the past month, ranked from largest inflows (1) to largest outflows (11).
  5. Strategic (quarter): the percentage change in investor asset flows over the past quarter, ranked from largest inflows (1) to largest outflows (11).
  6. Ranking: The sum of percentage change numerical rankings of investor asset flows in the Trading, Tactical, and Strategic categories sorted from largest inflows to largest outflows.

The SEAF Model Graphic

How To Use The SEAF Model

The SEAF Model’s backtested performance data are based on a hypothetical $100,000 trading account that equally participates in all SEAF Model signals, regardless of how many there are.  For example, if there are two SEAF signals, $50,000 is invested in each sector.  If there are three SEAF Signals, $33,333 is invested in each sector.  Typically, there are two SEAF signals per weekly update, but on rare occasions, there can be as many as four and as few as one.  The model is updated once per week, on the weekend, and any rebalancing to incorporate new or closed-out signals is assumed to take place on the opening the following Monday morning (or Tuesday if Monday is a holiday).  

This is the recommended (and the simplest) way to invest via the SEAF Model.  You can easily find these recommended signals on the SEAF Model page in our Research Center in the tan-shaded rectangular table entitled Current SEAF Model Signals & Related Performance, which is always located just above the SEAF Model Graphic. 

Using & Interpreting The SEAF Graphic & Accompanying Chart

The Ranking column in the SEAF Model Graphic above sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading, Tactical, and Strategic categories, from largest inflows to largest outflows.  The SEAF Model Scores chart below displays this ranking according to Favored (score of 1-15, green), Neutral (score of 16-24, yellow), and Not Favored (score of 25-33, red) sectors.  On this chart, the actual SEAF Model signals are highlighted in a brighter shade of green.

SEAF Model Scores chart

Additional Ways To Utilize The SEAF Model Scores

In addition to following the specific SEAF Model signals as discussed above, managers and investors may also consider using these numerical scores and chart to determine where else to potentially find value and opportunity in the sector space — as well as identifying which parts of the market to avoid. 

For example, the chart above shows that there are currently four Favored sectors with a score of between  3 and 15.  Two of them, Health Care and Energy (bright green columns), are SEAF Model Signals.  The other two, Consumer Staples and Industrials (green columns), also have a Favorable ranking score so managers /investors may additionally consider these as potential buying/overweighting opportunities.

Taking this a step further, managers/investors may consider paying special attention to the top 20 stocks in each Favored sector, based on market capitalization, to find potential opportunities in individual names while shying away from those stocks in the Avoid category.

We hope these changes and improvements to the SEAF Model make it easier to understand and to implement into your trading/investment strategy.  Please contact us by phone or email, or Click Here to set up a phone/online appointment with us for further clarification.