Today, I will prove the truth of one of my favorite sayings, “It is not being in the market that is important, but what we are in that is.” Last week, I audited the first half of 2014 market performance. Today, we will analyze the performance of the sectors to see which, if any, outperformed the market and by how much!
Per the performance chart I designed at stockcharts.com, you can see the market has enjoyed a 6.47 percent return for the first half of 2014. Five sectors outperformed the market: Utilities, Energy, Technology, Basic Materials and Health Care. Four sectors underperformed the market: the Consumer Staples, Industrials, Financials and the Cyclicals.
Top honors go to the Utility Sector ETF, symbol XLU, with an extremely impressive 18.76 percent return, beating the market return by 12.29 percent. Last place went to the Cyclicals ETF symbol XLY, with an anemic 0.89 percent return, grossly underperforming the market by 5.58 percent.
Past returns do not predict future performance. This year’s leader may be next year’s laggard. My recommendation is to learn how to chart securities, with both price and performance charts, to see what the big money — the institutions — are doing with your hard-earned investment dollars.
Keep in mind, with all sectors, there are low fee-Exchange Traded Funds that track each sector. Some like XLU, the SPDR Utilities Select Sector ETF, has a dividend of 3.33 percent, with a low expense ratio of 0.17 percent. There are also mutual funds that track these sectors. Make sure there is, at least, a two to three percent spread between the total expenses and the dividend.
These sector performance charts proved my point: It is not being in the market that is important, but what we are in that is! For those who like a diversified portfolio, take the time to learn more about sector Exchange Traded Funds. Being in the sectors that outperform the market can add a profitable part to your portfolio!
Next week, we will wrap up this series and answer your questions on if the market is getting close to a sell, using my long-term Rip Van Winkle trading system.
Plan your work, work your plan and learn to share your harvest!
David O. England
