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Pro Analysis

Strategist Stovall: 'Barbell' strategy of buying last year's winners AND losers beats the market

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Investors seeking to outperform the market in 2017 should deploy a so-called barbell strategy, which recommends buying the 10 best and 10 worst performing industries in a previous year, and avoiding those in the middle, according to a new study.

"For the year ahead, rather than choosing between 'let your winners ride' or 'buy low and sell high' when establishing a portfolio based on prior-year sub-industry performances, history says that investors have done better buying both last year's 10 best and 10 worst groups," CFRA's chief investment strategist, Sam Stovall, wrote in a note to clients Tuesday.

In the past 25 years, theoretically buying the 10 best and the 10 worst performing S&P 500 sub-industries at the start of the year generated an annual compound growth rate of 14 percent, compared with a return of 7.6 percent for the S&P 500 index. The strategy outpaced the S&P 500 77 percent of the time, according to figures compiled by CFRA.

Since there aren't ETFs that replicate the performance of the sub-industries in the S&P 500, here's what Stovall recommends investors do to replicate this performance in real life: