Use Sector Investing to Beat the Market
https://money.usnews.com/investing/buy-and-hold-strategy/slideshows/7-tips-to-use-sector-investing-to-beat-the-marketIf you’re craving an opportunity to beat the market, dip your toes into sector investing.
Sector investment strategies range from finding the best sector to invest in 2019, to capitalizing on the business cycle or investing in a theme. While following a passive approach with index fund investing is a sound way to match market returns, investing in sectors can surpass that strategy.
Here are seven ways to use sector investing to beat the market long term.
1. Let interest rates dictate. Robert Johnson, a professor of finance at Creighton University, researched sector investing for his co-authored book "Invest With the Fed: Maximizing Portfolio Performance by Following Federal Reserve Policy." He found that certain sectors performed better when interest rates fall, while other sectors showed superior returns when interest rates rise.
Between 1966 and 2016, the S&P 500 grew 15.2% annually when interest rates declined. The index grew 11.4% when rates were flat and only 5.8% when interest rates rose, Johnson said. In examining individual sectors, the performance was more extreme. As rates fell, apparel rose 28.5%, retail jumped 27% and autos climbed 25.4%, outperforming the returns of the market.
2. Use research analysts. For current sector recommendations let financial services companies do the heavy lifting. For instance, investors can view analyst calculations by the Center for Financial Research & Analysis, Ned Davis Research and Argus Research, which offer forecast and ratings on companies, on Fidelity Investments' website; the site has a section on weighting recommendations for sectors and industries.
Among those firms, at least at least two firms suggests overweighting in the following sectors: health care, consumer discretionary and energy. For these sectors, U.S. News mutual fund rankings recommends Vanguard Health Care Index Fund (ticker: VHCIX), Fidelity MSCI Consumer Discretionary ETF (FDIS) and the Vanguard Energy Fund (VGENX). – Barbara Friedberg
