Momentum Sector Investing
Sectors trend up or down often depending on the economic cycle. If you are trying to maximise your investment, being in sectors that are performing well (are showing Momentum) is beneficial. As the economic cycle changes so you need to revise your investments. What is the difference between Sectors and Industries – after all, they are often used interchangeably? The sector is a broader division whereas Industries are more specific. Where available I will tend to pick Industry if available. Of course, if you are a long-term investor (say 5 to 10 years), a contrarian or value investor you may look at the poor performing sectors as an opportunity! You pays your money and makes a choice.
Hot air or Proven Strategy?
MarketBeat reports: Industry-momentum portfolios — which jump into and out of various sector funds in an attempt to profit from those performing best at any given time — had a very good 2013.
In fact, nine of the 10 most profitable mutual-fund portfolios last year — out of the more than 250 monitored by the Hulbert Financial Digest — pursued such a strategy, also referred to as “industry rotation.” These nine produced an average gain of 41%, in contrast to a 32% return for the S&P 500, assuming dividends were reinvested.
Sectors in the States and UK
You can discover the best performing Sectors in the UK’s FTSE – here
Similarly for Industry performance in the US – here. In this case, I have chosen a 3-month view sorted by Weighted Alpha (Wtd Alpha). NB: Weighted alpha is a weighted measure of how much a stock has risen or fallen over a certain period, usually a year. Generally, more emphasis is placed on recent activity by assigning higher weights to later prices than those assigned to earlier movements.
These sites show sector/industry performance for Shares / Stocks. See later for sector analysis for Investment trusts (oh yes, back to my favourite type of investment!).
To illustrate the sector performance in the US (July 2018)
If you are looking for consistent performance over YTD (year to date), 1 month, 3 month and 52 weeks, then Security and Medical Information Systems are worthy of more analysis.
Now you can drill down into the Companies that are currently performing well in this Industry by clicking on the Name to see the components. Let’s choose Security to drill down into:
You now have a selection of companies to choose from and complete some more due diligence before investing!
Video: What Sector of the Stock Market Should You Invest In
References in the video
For Sectors: https://finviz.com/groups.ashx
For Industries: https://finviz.com/groups.ashx?g=industry&v=210&o=name
The above give bar chart views. If you wish to drill down into the constituent companies in the Industries / Sector switch to the Overview (see tabs).
Investment Trust Sectors
OK, this is my interest area! It is worth pointing out that the “sectors” are significantly different from the above! Sectors include geographical, Global Income etc. – completely different to the Industries discussed under stocks and shares. I use the Sector performance tool on Trustnet.com and sort on the 1 month performance. Others will look at the 3 month view as a more conservative approach. You can see the breakdown in the image below (July 2018).
Currently, Biotechnology and Healthcare are looking good over 1 month and 3 month time-spans. So, drill down to see the top performing Investment trusts in this sector.
So you can now discover the star performers and complete some due diligence on these investment trusts. Syncoma Limited looks like the star performer. However, note that the NAV (net asset value) is significantly lower than the Share Price. Syncoma is at a Premium, and the share price would have to fall back a long way to its real asset value. Of course, this IT is a star performer and may continue to rise spectacularly. My more conservative choice is IBT (International Biotechnology Trust). IBT recently introduced a 4% dividend – always a favourite with me. This change has been popular with investors too.
Review Momentum Investment Trusts
How often do I review my sector momentum investment trusts? Typically I will revisit on a monthly basis. If performance is positive, then I consider adding more. If there are declines then re-evaluate. How is the sector performing relative to the FTSE? If the IT is falling more than FTSE, then action should be considered!
The Business Cycle Approach to Equity Sector Investing – Fidelity
What’s The Best Stock Market Sector To Invest In? (Intelligent Trend Follower)
What Are the Best Sectors to Invest in for 2018? (Investor Place)