Sector ETF Performance in 2013

by Wayne Ferbert on August 13th, 2013

We continue to like the Financials, Energy, & Technology sectors in 2013. We have started to reduce some of the Financials by taking some of the big gains in that sector and rolled them in to Energy mostly.
Let’s look at how the year has progressed:
Year to date, the biggest sector winners are Healthcare, Consumer Discretionary, and Financials à all coming in at +25% or better so far in 2013. The S&P 500 is up a little less than 19% YTD.
The laggards are Materials, Technology, and Utilities à all coming in around 11%, give or take a percent.
Here is the somewhat busy chart!
But since the Fed announced in the first week of May that the ‘Taper was coming”, the market has been a very different beast. Let’s take a closer look at the May, June, July, and half of August performance:
Since May 1st, Industrials, Financials, and Consumer Discretionary have been the best performers. The S&P500 is up 7% since May 1st while these three sectors are all up between 10-12%.
The laggards are Consumer Staples at +2% and Utilities at -5.5%. Utilities are down because it trades more like fixed income than equity. And the change in interest rates that comes with a Taper will affect the price of all income producing products.
Two things jump out at me from this data:
  1. Financials seem to be able to retain their staying power in this market regardless of the market climate. Maintaining overweight in that sector has really worked and, quite frankly, shows no signs of weakening.
  2. Consumer Discretionary has shown strength all year long also. We think this is because when the Fed tapers, stocks are going to need to stand up on their own merits and not grow on the back of the Fed money pump. Consumer Discretionary is where investors look to find the most growth stories – hence, the investment funds have been flowing there. We expect that to possibly continue but want to see how the sector did in earnings before we add it to our conviction list.

One more observation: We have been the most overweight in Energy which has been steady. But we have also been a little over-weight in Technology which has not been that great.
So far, in the first two weeks of August, Technology has shown some strength in a weak market. We like the chances for Technology to hold up nicely if the market loses steam – at least on a relative basis. So, for now, despite the under-performance, we are still also over-weight in Technology.

Our preferred relative weighting of these three sectors: 3 parts Energy, to 2 parts Financials, to 1 part Technology.

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