Our approach to sector investing is unique. Unlike many trend-following systems, which make changes on a frequent basis, our holding period for a given sector typically ranges between 5 months and 2 years. Our trades frequently qualify for long-term capital gains. We accomplish this by looking only at long term trends, and by relying on standard deviation calculations that compare a sector's current volatility with that of its long-term past.

By combining our volatility calculations with risk-adjusted performance, we're able to identify sectors that are poised to outperform the S&P 500 in the coming 12-18 months. Not all of our top-ranked sectors will be winners. As such, we hold six sectors in our Select System to increase the odds that the portfolio as a whole will outperform over a 12-month period.

The Select System is allowed to draw from all of the funds in the Select family, but in practice is limited to those with total assets of $60 million or more. The Select System is not biased toward any particular investment style, and there are no limitations on the number of positions that can be occupied by any major industry group - except for energy, which is held to a maximum of 2 out of 6 sector holdings.

Fidelity's fund minimum for taxable accounts is $2500. In order to follow the Select System, you'll need an initial investment of about $20,000. In a typical year, we'll make 5-6 trades in this portfolio. Fidelity charges $7.50 for each Select trade of 30 days or more that requires the assistance of a telephone rep (you can avoid the fee by doing automated trades over the phone or over the Web). There is also a 0.75% redemption fee that applies if a Select is held for less than 30 days. Our model usually holds a sector for a minimum of 5 months.

The Select System's long-term performance makes it one of the best mutual fund portfolios tracked by The Hulbert Financial Digest.