Here’s Why You Should Invest in All the Sectors, Not Just One
The absence of a reliable pattern in sector performance supports an “own them all” approach.
Recent history shows the challenge of trying to pick “hot” sectors in advance.
Sectors represent groups of companies that make similar products or offer comparable services. From 2014 to 2023, no sector was a consistent outperformer (see Exhibit 1). Energy, the best performer in 2016, 2021, and 2022, delivered the worst annual returns six times. Tech, the leader in 2023, finished ninth out of 11 in 2022. Health care finished first in 2015, last in 2016, and first again in 2018.
The absence of a reliable pattern in sector performance supports an “own them all” approach. Holding stocks across all sectors puts investors in a position to capture higher returns where and when they appear.
EXHIBIT 1
Hot and Cold
Annual rankings of equity sector returns, 2014–2023
Sector Definitions:
Communication Services: Companies that provide telecommunication services, such as wire line, wireless, and internet access.
Consumer Discretionary: Companies that produce nonessential goods and services, such as automobiles, apparel, and leisure activities.
Consumer Staples: Companies that produce basic necessities like food, beverages, and household goods.
Energy: Companies involved in the exploration, production, refining, transportation, and marketing of oil, natural gas, and other energy sources.
Financials: Companies that provide financial services, including banks, insurance companies, and investment firms.
Health Care: Companies that provide health-care products and services, including pharmaceuticals, biotechnology, medical devices, hospitals, and health insurance.
Industrials: Companies that manufacture industrial goods, such as machinery, aerospace, construction materials, and chemicals.
Information Technology: Companies that design, develop, and sell computer hardware, software, and services.
Materials: Companies that produce basic materials, such as metals, chemicals, and forest products.
REITs: Companies known as real estate investment trusts, which own, operate, or finance income-producing properties.
Utilities: Companies that provide essential utilities, such as electricity, water, and natural gas.
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RISKS
Investments involve risks. The investment return and principal value of an investment may fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original value. Past performance is not a guarantee of future results. There is no guarantee strategies will be successful.
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