Sector Momentum
Our research has shown that an industry momentum approach, which involves investing in industries with the best recent performance, outperformed broad-market equity indexes in developed-market regions from 2000 to 2021.
Investors may wish to note, however, that momentum can change fast, especially in periods of market stress or sector upheaval. The recent rotation of the top-performing U.S. sectors clearly illustrates this risk.
In the chart below, for example, we look at the best- and worst-performing sectors for the periods shown. For the three-month period ended Oct. 30, 2021, the performance difference between the top and bottom sectors was 17.4%. For the three months ended Jan. 31, 2022, it was significantly higher, at 25.5%.
Some investors may adopt sector-rotation strategies to implement their tactical views, especially during periods of high sector-performance dispersion. This type of data may help their decision-making.
Best and Worst Sector Index Returns over a Three-Month Period
Source: MSCI.
Global Investing Trends
You’ll find insights provided in research papers, blogs and a Chart of the Week that succinctly puts topical issues in context.
Changing Sectors, Changing Correlations
When considering new sector exposures in their portfolios, investors can review correlations between existing and potential allocations to better understand whether these sectors’ returns moved in the same direction or if exhibited a differentiated return pattern.
Sector Leaderboard Changed as Inflation Picked Up
U.S. Fed Chairman, Jerome Powell, has made it official: We can no longer label the period of current inflation as transitory. The Fed left interest rates unchanged in January, and Chairman counselled patience about next steps.
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