FSI Sector Allocation

FSI Sector Allocation - October 2023 Outlook

Name: FS Insight
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Please CLICK HERE to download the October sector allocation report in PDF format.

We are pleased to announce the much-anticipated relaunch of the FSI Sector Allocation Strategy, designed to help investors outperform the market in the long run while managing risk exposure.

The new sector allocation model is comprised of two parts*:

Sector ETF Allocation: 85% of sector allocation model. Similar to the previous version of our sector allocation strategy, this is primarily realized through sector ETFs. The new decision-making process consists of three sub-components. (Slide 32)
1. Passive – 50% of the 85% sector ETF allocation replicates the current sector distribution of the S&P 500 index.
2. Strategic – 35% of the 85% sector ETF allocation is determined by the sector ratings of Fundstrat’s Head of Research, Tom Lee, and the sector technical rating of Fundstrat’s Head of Technical Strategy, Mark Newton. (Slides 33-34)
3. Short-term Momentum – We increase the weighting of the top 3 sectors with the strongest short-term momentum. Conversely, we reduce the weighting of the 3 sectors with the weakest short-term momentum. (Slide 35)
Tactical ETF Allocation: 15% of sector allocation model. This portion is new to the model.
- During each monthly update, we select 5 individual ETFs from a universe of 65 ETFs. (Slide 36)
- The selection process resembles our “Super Grannies” method and consists of four primary elements: 1\ ETF Rank; 2\ Tactical Rank; 3\ Price Trend; 4\ Technical View from Fundstrat’s Head of Technical Strategy, Mark Newton. (Slides 37-39)

* We understand that some clients are only interested in the Sector ETF allocation. As such, we’ve also included a version of an allocation consisting solely of Sector ETFs. (Slide 40)

Below is our October ETF allocation (Slide 2):

FSI Sector Allocation - October 2023 Outlook

The sector ETF weighting is primarily based on the Sector Ratings below (Slide 5):

5 Tactical ETF picks for October 2023 (Slide 18):

The new version improves on the previous version in three important ways:

Transparency: Although extensive consideration and institutional-grade analyses have gone into the revamp of this powerful tool, we have also put considerable effort into making this strategy easy to understand. Our goal is for investors to fully understand how weighting decisions are determined and why certain decisions are made.
Consistency: By establishing a clear, consistent methodology, we can maximize the benefits of our evidence-based approach to investment research while minimizing the inevitable influence of personal intuition. In addition, the new FSI Sector Allocation Strategy is more compatible with – though still distinct from – the methodologies behind our Granny Shots stock list and its related Super Grannies and Sleeping Grannies lists.
Versatility: The strategy incorporates both active and passive approaches, making it suitable for investors with different approaches to portfolio management. In addition, we will include both strategic and tactical components, making it useful for both short- and long-term time horizons.

Future Enhancements
Usage of DQM
Members familiar with our research are aware of our frequent use of the Fundstrat Doctor Quant Model (DQM) in stock selection. However, as some constituents of the Tactical ETFs fall outside the scope of DQM, we have yet to incorporate it into our current ETF selection process. We’re eagerly developing DQM for ETFs and look forward to integrating it soon.

Customized Sector Allocation
We understand that each member has unique risk tolerances and investment objectives. Some might prioritize our short-term Tactical ETF recommendations, while others might find certain ETFs in the Tactical ETF universe outside their investment purview. We’re currently developing a function within our platform that will allow members to customize weights for each portion of the ETF allocations, tailoring the model to fit their individual preferences. For instance, if one is solely interested in our strategic ETF allocations, they can set the weights for the Tactical ETF portion to 0% and the Strategic portion to 100%.

We look forward to announcing the release of these features when they are ready.

We hope you will find the Sector Allocation Strategy useful in your investment journey. The strategy will be updated on a monthly basis, and we look forward to hearing your thoughts on how we can make it better. If you have any questions about this, or any other aspect of our work, please do not hesitate to e-mail us at inquiry@fsinsight.com.

Disclosures (show)

This research is for the clients of FS Insight only. FSI Subscription entitles the subscriber to 1 user, research cannot be shared or redistributed. For additional information, please contact your sales representative or FS Insight at fsinsight.com.

Conflicts of Interest

This research contains the views, opinions and recommendations of FS Insight. At the time of publication of this report, FS Insight does not know of, or have reason to know of any material conflicts of interest.

General Disclosures

FS Insight is an independent research company and is not a registered investment advisor and is not acting as a broker dealer under any federal or state securities laws.

FS Insight is a member of IRC Securities’ Research Prime Services Platform. IRC Securities is a FINRA registered broker-dealer that is focused on supporting the independent research industry. Certain personnel of FS Insight (i.e. Research Analysts) are registered representatives of IRC Securities, a FINRA member firm registered as a broker-dealer with the Securities and Exchange Commission and certain state securities regulators. As registered representatives and independent contractors of IRC Securities, such personnel may receive commissions paid to or shared with IRC Securities for transactions placed by FS Insight clients directly with IRC Securities or with securities firms that may share commissions with IRC Securities in accordance with applicable SEC and FINRA requirements. IRC Securities does not distribute the research of FS Insight, which is available to select institutional clients that have engaged FS Insight.

As registered representatives of IRC Securities our analysts must follow IRC Securities’ Written Supervisory Procedures. Notable compliance policies include (1) prohibition of insider trading or the facilitation thereof, (2) maintaining client confidentiality, (3) archival of electronic communications, and (4) appropriate use of electronic communications, amongst other compliance related policies.

FS Insight does not have the same conflicts that traditional sell-side research organizations have because FS Insight (1) does not conduct any investment banking activities, and (2) does not manage any investment funds.

This communication is issued by FS Insight and/or affiliates of FS Insight. This is not a personal recommendation, nor an offer to buy or sell nor a solicitation to buy or sell any securities, investment products or other financial instruments or services. This material is distributed for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice.
The statements in this document shall not be considered as an objective or independent explanation of the matters. Please note that this document (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and (b) is not subject to any prohibition on dealing ahead of the dissemination or publication of investment research.
Intended for recipient only and not for further distribution without the consent of FS Insight.

This research is for the clients of FS Insight only. Additional information is available upon request. Information has been obtained from sources believed to be reliable, but FS Insight does not warrant its completeness or accuracy except with respect to any disclosures relative to FS Insight and the analyst’s involvement (if any) with any of the subject companies of the research. All pricing is as of the market close for the securities discussed, unless otherwise stated. Opinions and estimates constitute our judgment as of the date of this material and are subject to change without notice. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The opinions and recommendations herein do not take into account individual client circumstances, risk tolerance, objectives, or needs and are not intended as recommendations of particular securities, financial instruments or strategies. The recipient of this report must make its own independent decision regarding any securities or financial instruments mentioned herein. Except in circumstances where FS Insight expressly agrees otherwise in writing, FS Insight is not acting as a municipal advisor and the opinions or views contained herein are not intended to be, and do not constitute, advice, including within the meaning of Section 15B of the Securities Exchange Act of 1934. All research reports are disseminated and available to all clients simultaneously through electronic publication to our internal client website, fsinsight.com. Not all research content is redistributed to our clients or made available to third-party aggregators or the media. Please contact your sales representative if you would like to receive any of our research publications.

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FSI Sector Allocation

FSI Sector Allocation - October 2023 Outlook

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