Dorsey: Biotech, Chips, Drugs Top US Sectors

December 16, 2014 INSIGHT

Guggenheim S&P 500 Equal Weight (RSP | A-92)

Dorsey says: "Ninety percent of all money managers never outperform RSP. You've got to own that in your portfolio." That's quite a strong statement. RSP holds all the stocks in the S&P 500, but weights them equally rather than by market cap. Equally weighted funds often lean hard toward smaller firms, and therefore toward higher risk, but the impact here is more muted. While the fund has about one-third exposure to midcaps, we see only slightly elevated market risk (beta of 1.02). RSP avoids large sector biases too. The fund has a 10-year track record, so investors can check performance in good times and bad. RSP is extremely large and liquid, with about $10 billion in assets and trading more than $85 million most days.

iShares Dow Jones U.S. (IYY | A-100)

IYY is currently the No. 1-ranked ETF on Dorsey's relative strength technical model. According to Dorsey, U.S. equities have topped his list since October 2011, and he doesn't see that changing anytime soon. IYY is a highly efficient cap-weighted ETF that captures more than 1,200 U.S. stocks and 95% of the U.S. equity market cap. It charges only 20 basis points and tracks its index remarkably. Combine that with great liquidity and marketlike coverage, and IYY is one of the few ETFs that carries an A-100 score.

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