"Sector rotation" is the latest Wall Street buzzword, and for one major investor it has meant "buy financials."
The catalyst was the recent volatility in technology stocks, but the goal is to seize market opportunities without the dislocation of a sudden move.
"I wouldn't charge in anywhere," said Ross Bruner, chief investment officer with Mabon Securities of New York. Instead of a wholesale jump from one group of stocks to another, sector rotation "is more like a gradual positioning into a promising group."
The approach-not new, but enjoying a renewal-seeks to capitalize on shifts in the market that are, to an extent, telegraphed by the market itself.
"Today everybody is doing it to varying degrees," Mr. Bruner said in a recent interview. "It's a move to capitalize on opportunities as they present themselves."
Of course, sector rotation can cause volatility, as investors collectively pile into one group of stocks, raising share prices. The prices can then fall abruptly as investors leave the group in search of another hot sector.
Mr. Bruner recently shifted from high-flying tech issues and added financial service firms such as T. Rowe Price to a portfolio that also included Citigroup.
He moved into financials as banks were reporting first-quarter results. "Some sectors look like they're going to show better earnings growth," Mr. Bruner said. "That's when you want to move."
And the "numbers show that banks did very well," suggesting that shares were positioned to rise.
"As the results came in, I made my determinations," he said.
When moving into an industry group, Mr. Bruner typically chooses to redirect a percentage of the assets he has under management. The amount depends on how promising the industry group is, he said.
In his recent shift to financial shares, he used about 5% of the assets he oversees, an amount similar to other shifts he has made.
"You always want to be doing something to the fringes of your portfolio to keep your money at work," Mr. Bruner said.
The idea is to be nimble, he said.
"With the advent of stock indexes that replicate the market's performance, you have to be good," Mr. Bruner said. "If you don't outperform, people question the value of your services."
Sector rotation is a growing force in the market, said Tobias Moskowitz, finance professor at the University of Chicago.
"It's an approach that has become more commonplace over the past decade." Mr. Moskowitz said. "It's become more popular with retail and institutional investors."
"The goal is to shift into a sector that is going to have a run-up," he said.
Recently money has been moving out of the tech group, "and some of that investment is making its way into the banks," Mr. Moskowitz said.
Sector rotation can pay off, according to a recent study. A $1,000 investment made in 1983 and consistently moved into the top-performing industry sectors would have been worth $115,006 at the end of 1998, according to the research by CDA/Wiesenberger.
That same $1,000 placed in 1983 into an S&P 500 fund that bought low and sold high would be worth $73,373 after 15 years.
But experts say it takes very precise timing to get anywhere near the optimum results.
Sector rotation "is incredibly difficult to achieve successfully," said Stephanie Kendall, senior analyst at CDA/Wiesenberger. "It's very hard to determine which group is going to perform the best and for how long."