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Sector rotations can be extremely frustrating for investors. Portfolios remain overweight in formerly winning sectors while the previously-ignored market sectors, where they have no positions, move higher. Many investors are drastically underperforming the S&P/TSX Composite's 1.8 per cent year to date return without fully understanding why.

This chart compares the year to date performance of the major Canadian market sectors compared with the fourth quarter returns and it does appear that a sector rotation, or at least a significant correction, is underway.

The red columns represent the fourth quarter return for each sector, ranked highest to lowest (left to right). The blue columns show the year to date returns. The pattern is that the best Q4 performers, including consumer discretionary, consumer staples, financials and energy, have generated the worst returns in 2013. This suggests a market rotation.

Outside of telecom stocks, it doesn't appear that the reverse case – the fourth quarter's weakest sectors becoming the best – is displaying a strong enough trend to support an investment thesis. Industrials also buck the trend, underperforming in both time periods.

This chart provides a good excuse for investors to reassess the sector overweights in their holdings but is not grounds for a complete portfolio overhaul. Nonetheless, it does provide context for investors to understand where the returns are coming from in the current market and why their portfolios may be underperforming in this volatile environment.

Scott Barlow is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights, and follow Scott on Twitter at @SBarlow_ROB.

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