Sector Investing

Sectors can provide targeted exposure to specific segments of the economy, providing an opportunity to help investors potentially enhance returns and manage risk.

Explore ways to drive portfolio returns with sector exposure

Sectors can increase precision in portfolio construction.
  1. Business Cycle

    Understand the business cycle and the opportunities it can provide

    By recognizing which sectors are likely to outperform or underperform during particular phases of the business cycle, you can use sectors to target a specific client objective.

    EARLYMIDLATERECESSIONOUTPERFORMUNDERPERFORMDefensiveDefensiveEconomicallySensitiveEconomicallySensitiveDefensiveDefensiveand InflationSensitiveEconomicallyand InterestRate SensitiveEconomicallySensitiveEarly CycleEconomicallysensitive sectorsmay tend tooutperform,while moredefensive sectorshave tended tounderperform.Mid CycleMaking marginalportfolio allocationchanges tomanage drawdownrisk with sectorsmay enhancerisk-adjustedreturns duringthis cycle.Late CycleDefensive andinflation-resistantsectors tend toperform better,while morecyclical sectorsunderperform.RecessionSinceperformance isgenerally negativein recessions,investors shouldfocus on the mostdefensive,historically stablesectors.

    Learn more about the business cycle and how it can affect different sectors.

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  2. Opportunistic

    Potentially enhance returns

    Potentially boost client returns by investing in a sector that has historically outperformed during a given phase of the business cycle.

    OUTPERFORMTHE U.S. EQUITY MARKETUNDERPERFORMTHE U.S. EQUITY MARKETECONOMICGROWTHReboundsPeaksModeratesContractsEARLY:MID:LATE:RECESSION:CONSUMER DISCRETIONARYFINANCIALSINDUSTRIALSINFORMATION TECHNOLOGYMATERIALSREAL ESTATECOMMUNICATION SERVICESINFORMATION TECHNOLOGYCONSUMER STAPLESENERGYHEALTH CAREMATERIALSUTILITIESCONSUMER STAPLESHEALTH CAREUTILITIESENERGYHEALTH CAREUTILITIESCONSUMER DISCRETIONARYMATERIALSUTILITIESCONSUMER DISCRETIONARYINFORMATION TECHNOLOGYCOMMUNICATION SERVICESINDUSTRIALSINFORMATION TECHNOLOGYREAL ESTATE

    In a Growing Economy

    Consider information technology.

    • It has had the highest volatility relative to all sectors over the past 20 years, which could boost portfolio performance.
    • It has often outperformed during the early and mid phases of the business cycle when the economy is growing.1

    As the Economy Slows Down

    Consider consumer staples, health care, and utilities sectors.

    • They usually outperformed during the late and recession phases of the business cycle when the economy is slowing or shrinking.¹
    • They have had the lowest volatility relative to all sectors over the past 20 years, which may lower portfolio risk.
  3. Defensive

    Lower volatility and manage risk

    If you are targeting opportunities to help manage risk in a client's portfolio, you may want to invest in sectors that have been economically insensitive and have had lower volatility.

    Sectors can be an effective tool for managing equity risk.

    Information TechnologyEnergyMaterialsFinancialsReal EstateConsumer DiscretionaryCommunication ServicesIndustrialsUtilitiesHealth CareConsumer Staples24.8%21.2%20.6%20.2%19.2%18.8%18.3%18.0%U.S. Equity Market15.0%14.6%13.6%11.3%LowervolatilityHighervolatility
  4. Preemptive

    Protect from inflation

    Potentially help a client protect purchasing power by investing in commodity-type sectors that have historically done well as inflationary pressures build.

    Forecasting increased inflation?

    Consider energy or materials sectors.

    • As the economic recovery matures, the energy and materials sectors, whose fate is closely tied to the prices of raw materials, previously have done well as inflationary pressures build and the late-cycle economic expansion helps maintain solid demand.1

    Energy and materials have typically outperformed during the late phase of the business cycle

    Full-phase average annual performance

    –10%–5%0%5%10%15%20%EnergyUtilitiesCons. StaplesHealth CareMaterialsIndustrialsReal EstateCom. ServicesFinancialsInfo TechCons. Disc.Geometric AverageMedian Monthly Difference

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