Hi F and Welcome, Your note brings to mind a subject that hasn't been discussed here in a while - sector rotation. While an economy and its equity market are in a "feel good" mode and growing well rotation is a favorite pastime of many investors.
The idea is that as one sector of the economy becomes over-bought one can switch from that sector to the next in line for expansion. Like in the days of the Pony Express, there's always a fresh pony to ride as the current one tires. Where the investor has periodic tax implications with each switch, the results are good because of staying ahead of any individual sector's "recession."
Well, I believe we saw something like the "Alice In Wonderland" version of this over the last six months. As people saw their favorite sector start to decline, they jumped to another pony. However, they forgot to realize that each pony was heading up a steeper and steeper hill as the economy slowed. Each pony's legs gave out much sooner than expected or even tripped and fell.
As money rushed to and from these sectors for a short while it looked like rotation was going to save the investors. In the end few stayed enough ahead of the declining curve to save their stellar results from early in the year. With the market being an anticipatory device, I think that much of the damage has already been done, but not yet reported. The market anticipates while the accountants report history. Somewhere in between is "reality."
Once there's a glimmer of hope that the worst is over, the market will go back to anticipating the next bull leg. The huge flow of money that floats from sector to sector will make a choice as to where they will place their bets and magically that sector will become a shining star.
Several years ago I started to build a nice portfolio of energy related investments. I built it to a reasonable portion of my overall portfolio when those stocks were nobody's favorites. However, the growth of the rest of the portfolio diminished the energy content to a very small percent of total. This year it was the energy investments that did very well in my total portfolio as a "sector."
Another portion of my portfolio devoted to paying my living expenses did very well also. That was my bond funds. They had been in the tank for a long time as the FED raised interest rates. Finally as the FED started to give indication that they were essentially finished with this series of rate hikes, the bond funds started to shine. Exclusive of dividends, that portion of my account gained over 20% for the year. If we included the yield for that period, the total return would be well above the 30% mark.
Between energy, bonds and a healthy cash reserve, my account survived the Y2K experience. Lots of fresh seed was planted during the last half of the year. I'm hoping that we won't have to wait too long for some of it to sprout.
Thanks again for joining in.
Best regards, Tom |
