The stock market is coming out of a slump. The chance for it to continue to move higher in the months ahead is very good. But not every sector is going to benefit equally. Sector rotations usually happen during corrections. For example, small/mid cap stocks and value stocks did very well early this year. But since the Feb-March correction, they have fallen far behind the tech sector and large cap growth stocks. If you check the performances of the funds in your 401K account, most value orientated funds and small cap funds are doing quite poorly YTD. So it’s time to switch at least part of the funds into top performing growth funds in the same plan. In this early stage of a new rally, it’s very likely that the top performing funds will continue to outperform, probably until the next correction. By that time, we need to do re-evaluations.

When its money is placed in the wrong places, it’s very difficult for a mutual fund to outperform. From 2003 through early 2007, small cap stocks, natural resources stocks, REITs, and value funds were the star performers. Anyone who had heavily weighted in those sectors should have done very well. But the direction of the tide has changed. You need to make some adjustments if you want to keep getting top-notch returns from your investments.