Sector rotation
I often hear about sector or stock rotation. Can you kindly explain what this this means and how should I respond to this in my share portfolio. Thank everyone. Keep up the good work.
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Answer
Hi David,
We are definitely guilty of talking about “stock & sector rotation”, hence a good explanation makes sense!
Different factors drive markets at various times from interest rates to earnings and just plain sentiment. Through 2025 for example we’ve seen the “Certainty Trade” dominate proceedings, led by the banks, while a number of factors have weighed on the healthcare sector hence year-to-date heavyweight CBA is up ~19%, before dividends, while previous market darling CSL is down over 14%. A huge differential for two of the ASX200’s top four stocks by market cap.
- Sector rotation may be from say the banks who have soared into the healthcare &/or energy laggards. Note, at this stage we aren’t planning/pressing any switch buttons on this level but we are anticipating moving down the “risk curve” over the coming year which may see us increase/buy exposure into the telco, utility &/or supermarket sectors.
- Stock rotation may be between similar sector members, say from JB Hi-Fi (JBH) to Super Retail (SUL) on valuation grounds or from a copper miner like Sandfire (SFR) into a nickel/lithium play such as IGO (IGO) if we want to adjust our commodity exposure. Alternatively we may switch between stocks that have limited correlation.
The key being into Christmas as we expect limited movement on the index level to add alpha to portfolios we will need to be more active between stocks/sectors. Hopefully we do a better job of flagging our intentions and reasoning than we did previously explaining the simple phrase “stock & sector rotation”.
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ASX200 Sector Performance in 2025 – Source Bloomberg
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ASX200 Sector Performance in 2025 – Source Bloomberg
