Final answer:
Sector rotation is an investment strategy based on shifting the portfolio to industry sectors forecasted to outperform others, guided by macroeconomic forecasts and the phases of the business cycle. The correct option for the strategy mentioned is A. sector rotation.
Step-by-step explanation:
An investment strategy that involves shifting the portfolio into industry sectors predicted to outperform based on macroeconomic forecasts is called sector rotation. This strategy relies on understanding the business cycle, which is comprised of periods of economic expansion followed by contraction.
Investors using sector rotation analyze indicators like real gross domestic product growth rates and adapt their portfolio to capitalize on sectors that are expected to thrive in the upcoming phase of the business cycle.
For instance, if macroeconomic indicators suggest that technology will be the next booming sector due to advancements and increased demand, investors might rotate their investments towards tech stocks. Conversely, they may avoid sectors that are expected to perform poorly in the near future.
It is important to note that the success of sector rotation heavily relies on accurate macroeconomic forecasts and the ability to identify the current phase of the business cycle. Identifying these economic trends is essential for making informed investment decisions to adjust portfolios and maximize returns. The correct option for the investment strategy mentioned in the question is A. sector rotation.