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Sector & Equity Compass

Orange Stairs

Our Sector & Equity Compass provides investors with an overview of recent sector and equity performance and flows, and also features our Sector Picks and equity regions in focus for the quarter ahead.

The Basics of Sector Investing

Selective Market Exposure

Sectors allow targeted exposure to capture opportunities in market (be it sentiment, macro factors, themes, style). Across a fund range there is also the ability to play different parts of the business cycle in different regions, e.g. US vs. Europe.

Dispersion Between Sector Returns

Dispersion of returns is a defining characteristic of sector investing. As different sectors have different drivers, their returns will diverge over a given period. According to S&P, the dispersion between sector returns accounts for roughly half of the dispersion between stock returns. This implies that half of the value added from picking stocks could be achieved with selecting the right sectors.

Risk Management

Diversification of risk1 Sector investment offers a lower concentration risk than individual stocks and helps avoid idiosyncratic risk associated with individual stocks.

Varied correlations between sectors Each sector has a different correlation with the overall market. Taking advantage of these differences could reduce risk in a portfolio.

Idea Implementation

Because sectors comprise companies with the same economic activities, there are often style characteristics in common. This knowledge can be utilised to implement an investment view, particularly related to macroeconomic factors.

Implementing Sector Investing

Harnessing the Power of Sector Investing Through ETFs

Investing in sectors can align portfolios with broader market trends, giving exposure to specific factors and styles.

Sectors are particularly well suited to target certain economic variables and, when accessed through ETFs, investors can implement macroeconomic views simply and cost-effectively.2

  • Sectors offer a selective exposure with opportunities to potentially benefit from significant return dispersion
  • Investing in sectors can provide a better means of capturing thematic trends than individual stocks
  • ETFs are attractive tools for implementing economic and broader market views
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