I opened a small position in XIT.
I want to experiment with a trend-following method where I chase the hottest Canadian sector. As I've done with other experimental strategies, I'm putting some real money into it (so that I take it seriously and am motivated to track it). It's a small amount of money, and pretty inconsequential at 0.7% of total investments.,
But here's the idea. Using some technical analysis that has served me well in the past, I'm going to try choosing between XEG, XFN, XIT to be exposed to the "hottest" sector. Historically, here is what the selection would have been in the past:
Historically, the above selections (using the same technical analysis criteria as I'm now using) were good selections for their day. And you can see the market theme shifting over the years. The historical performance would have been 14.5% CAGR, compared to 6.9% for XIU though if you strip out the recent XIT years, the two returns become much more similar.
@MrBlackhill will likely ask, if this worked so well, why did I just post elsewhere that you probably can't achieve such high returns? That's a good question, and something I wonder about too. Many of these techniques seem great, on paper. But when you do it in real life, you just don't get those great returns.
It's likely due to hindsight bias. In hindsight, you can always craft the winning method but that doesn't mean this will work going forward. Another 10 years from now, there will be some other method -- something not obvious to us right now -- that is clearly the winning method.
A second issue is the problem of stamina and patience. My back test with this sector-chasing method showed some pretty long periods of disappointing results. The method is really about getting into the right position that captures the occasional, but HUGE, return of a sector that's on fire. XEG had huge returns in 2004 and 2005. But then, nothing too exciting happened from 2006 - 2011. When strength resumed, XFN gave some big results, but less dramatically so. More waiting through 2014-2016, until XIT started going ballistic.
So a big problem with this method is that I might have to wait around for years, seemingly in "dead money" before capturing a giant bull market. And I might be entering at such a bad, local peak, that I could see horrible results for the next ~ 8 years... which is probably long enough to make me give up on the method. Meaning that I miss out on the next bull theme.