Identifying and investing in the dominant sectors before they make a significant move is the key to out-performance.

What is relative performance?

Relative performance is the measurement of the performance of a sector and or industry against a suitable bench mark such as the All Ordinaries Index. By comparing the returns of a portfolio against a bench mark, the performance of the portfolio can be categorised relative to the benchmark. For example if the portfolio appreciated 45% over a period of time and the index appreciated 55% over the same period, we have a clear case of under-performance by 10%. In a bear market, if the portfolio declined by 10% and the index declined by 25% over the same period, the portfolio out-performed the index by 15%.

What is a relative performance strategy?

The relative performance strategy is one of several sector rotation strategies. It looks at how a company’s stock price fares relative to its peers (or relevant asset group). It is also called a “relative return strategy” and is similar to but not exactly the same as a “relative strength strategy”. The relative performance strategy is a robust quantifiable approach that systematically identifies sectors and industry groups prior to them making a large appreciation in price.

Referring to the Global Industry Classification Standard (GICS), Options 21 can not only rank sectors in relation to a bench mark, but can also do the same for the industries within that sector or even stocks within a particular industry.