Shifting consumer preferences and the relentless rise of e-commerce are changing the sector’s beneficiaries of the healthy backdrop away from retail, yet other Discretionary opportunities abound outside of the traditional retail groups.
While we view the industry group selection as the most important decision, looking at the sector level rankings also helps us identify broad trends. Here we highlight the top two rated sectors, currently, which also represent a combined >40% weight in our Select Industries Portfolio.
Despite this sector’s extended outperformance, we think this trend may persist in the near term as Discretionary industry groups look increasingly attractive within our group work. Keeping an eye on the Fed Funds rate is key, however.
All ten of the S&P 500 sectors recorded a sequential increase in four-quarter trailing net profit margins. But consider where sector margins stand today relative to their 25-year medians. Eight of ten S&P 500 sectors are recording profit margins well above their long-term medians.
Momentum and Value worked in 2013. Materials and Financials were the easiest sectors to exploit; Discretionary and Tech the most difficult. Momentum works in December; Value and Small Caps at the start of the year.