Chart 40 content
Ashish Lodh/ Ana Harris/ Fotios Kassianidis
March 11, 2022
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