Sectors on a roll for 2018

Fri 08 Dec 2017

By Sam Lees

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Sector analysis

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As we pause for breath towards the end of a hectic year we take a moment to look at which sectors did well in 2017 and what has momentum as we head into 2018.

dice2017 has certainly been eventful but we’ll cover that in more detail in a separate blog.  Here we want to keep the focus on how 2017 sector performances cast a light into 2018. 

In particular we want to identify sectors that still have momentum as we head in the New Year.

Looking back…Asia dominates

There is some cross-over between the sectors that have done well in 2017 as a whole and those that have momentum going into 2018, based just on the last 6 months. 

For example, Asia, emerging markets and three different smaller companies are the story for 2017, as you can see in Table 1, the second column with year to date numbers.

It’s not a surprise to see that Technology also had a good run, led by the big FAANG tech stocks (Facebook, Amazon, Apple, Netflix and Google/Alphabet). 

Asia as a whole, plus emerging markets also had an excellent 2017.

Looking at the bottom, it’s dominated by bond sectors and the mish-mash that is the Targeted Absolute Return sector.  Nonetheless, if a low risk sector generated 3% or above over the year that is not too terrible compared to prevailing interest rates.

The Specialist sector is always a bit anomalous in this kind of analysis, as the average performance disguises stark differentials within the sector – one we reflect on in the upcoming TopFunds Guide, later in January.

Moving forwards…. Asia again!

Looking into 2018, China and Japanese Smaller Companies are the sectors with the most momentum – see the last column in table 1, with the 6-monthly ranking in brackets.  The Japan sector follows close behind.

UK Smaller Companies is 4th in the table.  More certainty around Brexit and some constructive negotiations on trade could be very good for this sector.  One to keep an eye on – this sector includes some cracking funds.

Global emerging markets follow, which will surprise many as it is oft-stated that emerging markets are a geared play on US stability-cum-growth – the assumption of which is a tad uncomfortable.

We’re certainly cautious about the prospects for the US market given valuation concerns and the “ambitious” growth prospects targeted by the President.  Mid-term elections in 2018 have the potential to eat into the Republican majority in both the House and the Senate, upending Trump’s plans for the rest of his term. 

But, as we always say, overvalued markets can go higher.  It would feel like a bonus if they just held their ground!

Running out of steam

One of the benefits of momentum is that you don’t need to have a view on whether markets are over or under-valued.  Use a momentum process like Dynamic Fund Ratings to keep you in the areas that are performing better.  Use a stop-loss to limit your downside risk.

Thinking of Gold Membership?

Our stop-loss page went live at the end of November for Gold Members and we’re continuing to develop that.  At the beginning of December, we also launched the Dynamic Portfolio Library, which includes info on many of our Dynamic Portfolios as well as ongoing updates to fund choices as we hit review points.  These are both only available to Gold Members but it's only £1 for the first month.

 

With all the tools and research we're developing it's certainly worth giving Gold Membership a try!

 

ACTION FOR INVESTORS

  • Asia has momentum going into 2018
  • Make sure you have a clear stop-loss plan
  • Whatever process you follow, make sure you stick to your review periods

FURTHER READING


Table 1: Sector performance YTD and 6-month (full table, sorted on Year To Date)

Name

Year To Date performance (%)

6-month performance (%)

China/Greater China

30.14

11.62 (1)

Japanese Smaller Companies

27.46

10.58 (2)

European Smaller Companies

23.02

3.61

UK Smaller Companies

22.33

6.29 (4)

Technology & Telecommunications

22.32

4.14

Asia Pacific Excluding Japan

20.13

5.49

Global Emerging Markets

20.03

5.84 (5)

Europe Excluding UK

16.42

2.25

Japan

16.26

7.06 (3)

Global

11.67

3.54

UK All Companies

9.90

0.77

Global Equity Income

9.65

2.75

North America

8.98

5.02

UK Equity Income

7.77

-0.56

Sterling High Yield

6.27

1.98

Specialist

5.55

0.83

North American Smaller Companies

5.37

4.68

Property

4.78

2.06

Sterling Strategic Bond

4.41

0.72

Sterling Corporate Bond

4.31

0.33

Global Emerging Markets Bond

3.99

-0.83

Targeted Absolute Return

2.90

0.70

Global Bonds

2.38

0.34

UK Index Linked Gilts

1.89

-0.80

UK Gilts

1.00

-1.56

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Sector analysis

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