Dennis - Sectors that sell at below market multiples are usually extremely mature industries with limited annual growth rates, or industries where growth in recent years has been well below the market average. Airlines have turned their profit picture around after years of struggling, and are now benefiting from high passenger capacity, fare pricing power, favorable union agreements, and falling fuel costs. Last year, I think, was the first in many where the industry actually turned a profit. Change in sentiment from negative to extremely positive is obvious over the past year, as FSAIX has gained over 60% in last 12 months and shows no signs of losing elevation. Without having further details, since I do not track individual issues within specific sectors, I would assume some low PE sectors to be automobiles, banks and brokers, insurance, etc. Investing in selects using sort of a "value" approach may or may not always be successful, of course, for gains will depend on the success of the industry, regardless of its valuations. Plus, it would probably completely eliminate an investment in technology at any time due to the high growth rates and multiples accorded to firms in this sector, while the potential gains in these volatile funds can often turn out to be the best in the family.
Bernie Kaplan
www.sectorfunds.com |
