In light of the recent volatility in the stock and bond markets, the practice of sector rotation is so important to our mutual success. As I stated in my book "The 25% Cash Machine," when it comes to selecting securities for inclusion in our model portfolio, it has to be "the right idea at the right time."

Making It Happen

I spend a great deal of time and effort combing through copious amounts of research, information and other data–and then applying those findings to the current market environment. That's how I determine which holdings are our best prospects for the next six to 12 months. I use a six- to 12-month time span because that's as far into the future that someone can project when working within the current volatile investing landscape.

Once I find those hot holdings, I do what's called "upping the sector weighting" in our portfolio, in order to raise our exposure to the particular pocket of the economy that's showing signs of new or continuing strong growth trends. Again, those are trends that have a positive six-month to one-year forward look to them.

This is exactly why The 25% Cash Machine portfolio has Business Development Companies (BDCs), Tanker and Shipping Carriers, Convertible Preferred Closed-End Funds, Specialty Finance REITs and Global Income Funds. And why we have more than one name in the given sectors that are showing signs of upward business momentum. The holdings in our model portfolio are usually concentrated in 10 or fewer sectors.

With all this recent slowdown in global GDP, fund managers are shifting some assets from pure growth to more defensive asset classes. Following the dramatic sell-offs, and in addition to a financial flight to Treasury Bonds, companies that do business in the fundamental things we must have to live day to day–like buses for transportation, healthcare and energy–were the first to see inflows of capital.

D-Fence

Since late 2007, we positioned our newest recommendations with a bias toward the notion that the economy, both in the United States and abroad, would cool. Not a major recession, but a cooling off of the torrid growth rates we've seen for the past three years.

Within our defensive holdings, we own an aforementioned Canadian bus manufacturer with a three-plus year backlog of orders. We also own an Income Deposit Security (IDS) based on non-utility power generation projects and transmission, which is a very defensive industry, as well. Add to those our specialty finance REITs and our convertible closed-end funds, and we have a number of separate securities within our current holdings that are defensively structured to benefit from a slow-growth scenario.

The key here is to use a sound method of research to determine which sectors are strong and likely to remain strong for some time, and which sectors are weak and apt to continue to exhibit weakness–like subprime lenders.

As part of the sector rotation theme, I removed our only subprime lender stock, back in September, because I was starting to see weakness in the overall subprime data at that time. This is why I'm a student and practitioner of sector rotation. I saw trouble on the horizon with the subprime data and that confirmed my decision to get out.

Once you accurately identify where the market's strengths and weakness are–with an objective of always being early enough–you can move your capital out of the weak sectors and into the strong sectors to take full advantage of favorable, or even unfavorable, conditions.

When it comes to deflationary pressures, as the latest pulse of the market sentiment would indicate, we want investments that will benefit from strong money flow that's seeking more stable returns, like bond-equivalent products.

As money comes out of cyclical stocks and funds, it will find its way into defense-minded stocks and funds paying out big yields with underlying growth potential. And it's of the utmost importance to have these deflationary assets in place before the crowd turns toward those all-weather sectors. That's how and why we got the push up in price–by being early and by being ahead of the crowd.

Think about it: Fat dividend checks each and every month, totaling 8%–12% annually, plus 15%, or more, capital gains on top of that! And Bryan Perry makes it unbelievably easy! You make just 2 or 3 moves a months and reap all the profits! Sign up for your three-month absolutely risk-free trial subscription to the 25% Cash Machine today and you'll also receive three of Bryan's most popular income-producing reports–FREE! Don't miss out!