The SEAF Model

The SEAF (Sector ETF Asset Flows) Model

SEAF is an acronym for Sector ETF Asset Flows.  The SEAF Model was created to quantitatively identify long / overweight opportunities in US market sectors.  SEAF does this by “following the money” as it moves around the 11 Select Sector SPDR ETFs, which together comprise the S&P 500.  Following the movement of money identifies these opportunities sooner and more accurately because, with the SEAF Model, we can see the money moving before the trends this money movement creates become apparent.

How We Derive The SEAF Model Signals

In the SEAF Model Graphic, the top two sectors in each category according to percent change in inflows are highlighted in green and the top two sectors in each category according to percent change in outflows are highlighted in red.   The premise of the model is to invest in the sectors that the money is going to and to avoid the sectors that the money is leaving.  The SEAF Model buy/overweight signals are sectors that are one of the top two in positive percent change in inflows in multiple time periods.  There are also additional rules built into the model for money management purposes.

Using & Interpreting The SEAF Graphic & Accompanying Chart

The Ranking column in the SEAF Model Graphic above sorts the entire table of 11 sector ETFs according to the sum of rankings in the Trading, Tactical, and Strategic categories, from largest inflows to largest outflows.  The SEAF Model Scores chart below displays this ranking according to Favored (score of 1-15, green), Neutral (score of 16-24, yellow), and Not Favored (score of 25-33, red) sectors.  On this chart, the actual SEAF Model signals are highlighted in a brighter shade of green.

Performance Data

The next two tables below display performance data for the SEAF Model through December 2022. The starting date is May 2020 because we had to allow for the data from the Communication Services Select Sector SPDR Fund (XLC, the newest addition to the Select Sector SPDR ETFs) to normalize to the rest of the data.  Each performance category is compared to the benchmark S&P 500 (SPX). The more significant comparisons are highlighted in green.

The first table below displays the quarter-by-quarter relative performance of the SEAF Model vs. the S&P 500, showing that SEAF has outperformed the S&P 500 in 8 of the past 10 quarters (80%) tested.

The bottom part of the table shows that SEAF outperformed the S&P 500 by 12.0% in 2022 and outperformed the S&P 500 by 36.4% since Q3 2020.

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The next table below compares quantitative performance vs. the S&P 500, showing that the SEAF Model outperformed the S&P 500 in 9 of the 10 categories shown. 

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SEAF Model performance Highlights:

• SEAF has double the total return (see chart below) and almost double the annualized total return of the S&P 500
• with a lower maximum drawdown.
• SEAF has a significantly higher alpha (excess return) and a slightly lower beta (systematic risk) than the S&P 500.
• SEAF has both a higher up capture ratio (gains in up markets) and lower down capture ratio (losses in down markets) than the S&P 500.

The chart below plots the daily performance of the SEAF Model vs. the S&P 500, in terms of percentage return, since May 2020.

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