TY - JOUR T1 - Measuring Sector Cyclicality: A Factor-Based Approach JF - The Journal of Beta Investment Strategies DO - 10.3905/jbis.2022.1.014 SP - jbis.2022.1.014 AU - Alessio de Longis AU - Daniel Zanin AU - Dianne Ellis Y1 - 2022/09/24 UR - https://pm-research.com/content/early/2022/09/24/jbis.2022.1.014.abstract N2 - Equity sectors are often ascribed static economic classifications that fail to consider their dynamic and time-varying fundamental characteristics across business cycles. Leveraging research findings on factor cyclicality, the authors propose a simple and practical methodology to categorize sectors as cyclical or defensive by estimating their sensitivity to a cyclical multifactor portfolio. Their results reveal that although some sectors have exhibited persistent cyclical or defensive features, most sectors have experienced noteworthy changes over time. Using a predictive business cycle regime framework, they document the effectiveness of this dynamic factor-based sector classification approach and provide examples of sector rotation strategies that have historically generated attractive excess returns, outperforming static alternatives. Their results are consistent with a factor investing paradigm, recognizing that factors are important drivers of portfolio risk and performance, and traditional asset classes can be seen as implementation vehicles of intended factor and macro exposures. ER -