(By Rich Bieglmeier) Depending on what study you read, being in the right sectors, or out of the wrong ones, can account for something like 20% to 40% of a stock's return. You've heard the worn out cliché that a rising tide lifts all ships.
Some highly distorted versions of the tide come to mind. For example, any company with dot com in the name during the late 90s. Not too long ago investors could toss money into gold and silver without consideration. Before that, the rage was flipping homes. Heck, in the 1630's, folks went manic over tulips.
History is rife with examples of exaggerated returns in narrowly focused industries/sectors. Human nature being human nature, Wall Street's future will rhyme with past love fests. You can count on it.
One of iStock's weekly rituals is to compare the performance of more than 150 sectors, subsectors and styles to the S&P 500. We want to know which parts of the market have the markings of over or underperforming the benchmark index. The entire idea of modern portfolio theory (a.k.a. asset allocation) is built on the idea/fact that 90% of money managers fail to outperform the index.
If you know which sectors, styles or industries will rise or fall relative to the S&P, it's possible to manage your money more effectively that 90% of the professional class.
iStock has broken its rating into four groups, emerging bull, mature, bull, mature bear and emerging bear. We think the names speak for themselves, but we will define them with more detail as we present the candidates.
EMERGING BULL: industries with positive technical analysis traits that are in the early stages, indicating possible above average returns in the near-term:
Oil & Gas
Integrated Oil & Gas
MATURE BULL: industries that have outperformed and their charts suggest the above average returns could continue:
Building Materials & Fixtures
MATURE BEAR: industries that have underperformed and, based on their current chart patterns, could continue to lag:
EMERGING BEAR: industries that have fresh negative technical analysis set ups and could have subpar performance in the weeks ahead:
Travel & Leisure
Restaurants & Bars
Investors might wish to focus on small-cap names in our buy lists. Regardless of style, value or growth, small-caps across the board are showing signs of emerging strength. In follow up articles, iStock will highlight some of our favorite names from the emerging and mature bull lists.