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Seasonal Investing in Market Sector

There are two ways investors can use seasonal trends in their research to select the best stocks to invest in.

The first approach is called the bottom-up approach. In this bottom-up approach, investors will randomly search for seasonal trends in a few of their favourite stocks . For example, by using our Seasonal Investing report, investors will notice that Qualcomm Inc. (QCOM) has its best 3-month period from February to April. There are only 2 losses. That means this seasonal trend has been profitable 8 out of 10 times (2007 to 2016);which gives a 80% winning probability (Refer to Figure 1)

Figure 1: Qualcomm Inc has its best 3-month period from February until April.

Curious investors will then research into stocks in the similar industry like Intel Corporation (INTC) or Taiwan Semiconductor (TSM). They will realise that this seasonal trend is not limited to Qualcomm Inc. (QCOM) alone but also on Taiwan Semiconductor (TSM) with a 90% winning probability and Intel Corporation (INTC), 80% winning probability . The whole semiconductor industry seems to move in tandem during this period. However, this bottom-up approach is not easy as investors need to look at many individual stocks before concluding that it is a broad-based sector seasonal trend.

The second approach is called the top-down approach. In this top-down approach, investors gauge the seasonal trends in a sector or industry by focusing on the Exchange-Trade Fund (ETF). For example, VanEck Vectors Semiconductor ETF (SMH) is the investment fund that holds assets in semiconductor companies like Intel Corp (INTC), Qualcomm Inc(QCOM) and Broadcom Ltd (AVGO). By looking at the Seasonal Investing report, investors will realise that VanEck Vectors Semiconductor ETF (SMH) has no losses for the past 10 years. It has a 100% winning probability! (refer to chart 2 and chart 3).

Chart 2: SMH Seasonal Investing Summary shows that Feb-Apr has 100% winning probability


Chart 3: SMH February to April gain for the past 10 years (2007 – 2016)

This is a broad-based seasonal trend for the semiconductor industry. Investors can either choose to invest in VanEck Vectors Semiconductor ETF (SMH) directly or to invest in the stocks from this fund. The top 10 holdings for VanEck Vectors Semiconductor ETF (SMH) are as following:

Intel Corp (INTC) : 13.2%
Taiwan Semiconductor Manufacturing Co Ltd ADR (TSM) : 12.9%
Qualcomm Inc (QCOM) : 6.3%
Broadcom Ltd (AVGO) : 5.6%
NVIDIA Corp (NVDA) : 5.5%
Micron Technology Inc (MU) : 5.0%
ASML Holding NV ADR (ASML) : 5.0%
Texas Instruments Inc (TXN) : 5.0%
Applied Materials Inc (AMAT) : 4.5%
Analog Devices Inc (ADI) : 4.4%

At Seasonal Investing, we encourage investors to use a longer term investment period like 3-Month Hold. Investors just need to review their portfolio once every quarter, just like a fund manager.

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