Stock Sectors: Know When to Hold ‘Em

Written by: Global Thought Leadership | April 27, 2018

Source: Bloomberg, April 26, 2018 Past performance is no guarantee of future results. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges. This information is provided for illustrative purposes only and does not reflect the performance of an actual investment.

 

The Bottom Line

  • Despite recent market drama, the S&P 500 Index is down only a paltry -0.2% price decline since the beginning of the year.1
  • But most of eleven sectors within the index have seen significant gains and losses, ranging from a 5.0% rise for Consumer Durables to a relatively sharp -11.9% fall for Consumer Staples.
  • The difference between the two sectors so far in 2018 can be explained by just three stocks within Consumer Durables:  Netflix, Chipotle and Amazon, up 63.5%, 46.2% and 29.8% respectively.
  • Within the broader S&P 500 Index, those three stocks are weighted roughly 0.6%, 0.04% and a whopping 2.68% respectively. Which means Amazon, the third largest stock in the S&P 500 in terms of market cap (behind Apple and Microsoft) carried the weight in the sector for the year.
  • While only time will tell whether that stock will deliver all that investors hope down the road, its dominance this year within its sector illustrates how a decision about that one stock could have had a decisive impact on an equity manager’s overall returns for 2018.
  • Looking further back, over the past 12 months, it was the Info Tech sector that led the pack – up 24.5% -- while Consumer Staples was the laggard, declining -8.7%. In that sector, the laggards were relatively consistent over the time periods. That list includes Kraft Heinz (-36.9%), Campbell Soup (‑26.9%) and Philip Morris (-26.0%).
  • Bottom line: While index-based investment ensures that the biggest stocks in an index are included in overall performance, an active decision about a particular stock – the heart of the active management process –can significantly drive performance.  In addition, active managers can capture the performance of stocks that might not even be included in their benchmark indexes – the hallmark of high active-share investment approaches.

 


1 Source: Bloomberg, April 26, 2018, 6:00 PM EDT

Definitions:

The S&P 500 Index is an unmanaged index of 500 stocks that is generally representative of the performance of larger companies in the U.S. Indexes are unmanaged, and not available for direct investment. Index returns do not include fees or sales charges.

The S&P 500 Info Tech Index is a capitalization-weighted index containing the stocks in the S&P500 classified as Global Industry Classification Standard (GICS) information technology companies.

The S&P 500 Consumer Durables Index is a capitalization-weighted index containing the stocks in the S&P500 classified as Global Industry Classification Standard (GICS) consumer durables companies.

The S&P 500 Consumer Staples Index is a capitalization-weighted index containing the stocks in the S&P500 classified as Global Industry Classification Standard (GICS) consumer staples companies.

 

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