Kaeppel’s Sector Seasonality Strategy

A reader suggested looking at the strategy described in “Kaeppel’s Corner: Sector Seasonality” and updated in “Kaeppel’s Corner: Get Me Back, Clarence”. The steps of this calendar-based sector strategy are:

1. Buy Fidelity Select Technology (FSPTX) at the October close.
2. Switch from FSPTX to Fidelity Select Energy (FSENX) at the January close.
3. Switch from FSENX to cash at the May close.
4. Switch from cash to Fidelity Select Gold (FSAGX) at the August close.
5. Switch from FSAGX to cash at the September close.
6. Repeat by switching from cash to FSPTX at the October close.

Does this strategy materially and persistently outperform? To investigate, we compare results for three alternative strategies: (1) Kaeppel’s Sector Seasonality strategy (Sector Seasonality); (2) buy and hold Vanguard 500 Index Investor (VFINX) as an investable broad index benchmark (VFINX); and, (3) a simplified seasonal strategy using only VFINX from the October close through the May close and cash otherwise (VFINX / Cash). Using monthly dividend-adjusted closing levels for FSPTX, FSENX, FSAGX, the 13-week Treasury bill (T-bill) yield as the return on cash and VFINX over the period January 1987 through May 2011 (24+ years), we find that: (more…)