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According to surveys, about half of a share’s price is tied to the performance of the industry/sector the company is in. But just because a sector is going well now does not mean it will continue to do so. The following table, courtesy Morningstar, shows US returns by sector. While not entirely relevant to the Australian market, note the performers and the trends and how quickly the returns change.
Stock Sector Returns - 10 June 2011
|
US Market |
Sector Name | YTD |
1-Year |
3-Year |
5-Year |
Basic Materials | -0.30 | 48.16 | -1.23 | 16.04 |
Communication Services | 6.32 | 34.41 | 2.56 | 8.82 |
Consumer Cyclical | 5.94 | 43.41 | 9.34 | 8.28 |
Consumer Defensive | 8.25 | 30.33 | 5.17 | 7.71 |
Energy | 7.45 | 42.05 | -3.96 | 9.03 |
Financial Services | -0.54 | 18.56 | -5.97 | -0.65 |
Healthcare | 14.57 | 35.32 | 8.38 | 6.78 |
Industrials | 5.84 | 35.73 | 3.47 | 6.71 |
Real Estate | 4.55 | 28.40 | 1.74 | 5.06 |
Technology | 3.06 | 32.90 | 7.02 | 11.50 |
Utilities | 7.76 | 31.91 | -2.75 | 5.32 |
Morningstar also provide sector valuations for subscribers but the business of identifying sectors with the best prospects, is not an exact science. To find companies with prospects is even more difficult. Look for confirming signals like directors buying, companies buying back their shares, institutional shareholders topping up. Look for companies that have developed important new services or products.
Australian sector performance
Netquote Information Services provide constantly updated charts of the market performance of Australian industry/sectors here. Click on the chart at that webpage for more information. The Global Industry Classification Standard (GICS) on a company by company basis can be found on our site. Watch for new trends, including demographic trends, as they develop. Also be aware that some industries are more volatile than others. High tech shares for example are much more volatile than consumer shares.
We acknowledge just how difficult it is to pick sectors, or companies for that matter, that are due for a surge. Much, if not all of the expectations are often already reflected in the prices.