Portfolio Impact: Sector Relative Strength vs S&P 500

Portfolio Impact: Sector Relative Strength vs S&P 500 Index


he US stock market has been stuck in a bit of a not-too-impressive trading range this year.

As a result, investors may be curious to see where the strength has been in the market so far.

A useful tool that investors can use to make sure they are exposed to the strongest sectors of the market, is to view sector relative strength.

Comparing relative strength vs the S&P 500 Index, allows us to see which sectors are outperforming and avoid those which are not.

For those not familiar with relative strength, Investopedia explains:

Relative strength is a measure of the price trend of a stock or other financial instrument compared to another stock, instrument or industry. It is calculated by taking the price of one asset and dividing it by another.

Currently, the four strongest sectors are:


healthcare tech cons staples consumer disc


source: Sector SPDRs

Relative Strength Impact To Portfolio Performance


Why should you pay attention to relative strength?

By investing in the strongest performing sectors, an investor can enhance his or her long term portfolio returns.

I ran a quick backtest to show this:


-Buy (equally) the top 4 strongest S&P sectors, as measured by relative strength.

-Rebalance at the start of each month.


relative strength portfolio

relative strength annual performance

relative strength performance

backtested data source: ETFreplay

By simply using relative strength indicators, investors can make sure they are investing in the strongest performing sectors and can avoid “unfavored” sectors.

Questions? Thoughts?



Feel free to leave a comment below or you can reach out to me privately here.


John Rothe

CEO & Chief Investment Officer

Riverbend Investment Management



featured image: Wikimedia Commons/Jnadler1



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