Economic Cycle ETFs: A Strategic Investment Approach

With the ease of trading in exchange-traded funds, you can apply a number of strategies, among which is the ETF strategy of timing the economic cycle. ETFs are investment funds that track major indexes, investment styles and broad market sectors. This leaves a simple execution for an economic cycle strategy.

First make sure that you have the ETFs tracking the major sectors on your radar: consumer staples, consumer goods, machinery and financials. Keep in mind that the definition of those general sectors can be translated with different investment funds. You generally want to stick with the ETFs that have been introduced by the same investment company for the strategy.

Timing the economic cycle requires careful analysis of the current situation of the economy as well as a basic understanding of economic cycles. Here is the list in chronological order of which sector should be growing in each stage of the economic cycle: 1) consumer staples, 2) consumer goods, 3) machinery and 4) financials.

These market sectors tend to do well in the different stages of an economic growth pattern. If the financial sector has been exhibiting strength for an extended period, you can bet that the current economic cycle is in the late stages.