Looking For the "Hot" Sector? Not So Easy!

Sectors within the stock market represent groups of companies that make similar products or offer comparable services. Recent history, as shown in the chart below, shows the challenge of trying to pick “hot” sectors in advance. 

• From 2014 to 2023, no sector was a consistent outperformer. 

• 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.

Annual Rankings of Equity Sector Returns

2014 - 2023

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Notes:  The annual returns are Russell 3000 Index Global Industry Classification Standard (GICS) sector returns. Real estate investment trusts (REITs) are shown as a separate category to illustrate their exclusion from certain funds. REITs are classified according to the GICS. Real Estate is excluded from the chart because it did not exist as a GICS sector category prior to September 2016. S&P/MSCI changed the GICS methodology after market close September of 2018 to rename “Telecommunication Services” to “Communication Services” and to reclassify a number of companies to that sector. Dimensional reports these changes in company membership to Communication Services starting October 2018, but changes the name historically to Communication Services to maintain consistency. Frank Russell Company is the source and owner of the trademarks, service marks, and copyrights related to the Russell Indexes. The GICS was developed by and is the exclusive property of MSCI and S&P Dow Jones Indices LLC, a division of S&P Global. 

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.

RRCM Disclosure:  The author does not intend to provide investment, legal or tax advice as these materials are for general educational purposes only. Please consult your legal, tax or investment professional for advice on your particular situation. This material is derived from sources believed to be reliable, but its accuracy and the opinions based thereon are not guaranteed. It is not intended to be a solicitation, offer or recommendation to acquire or dispose of any investment or to engage in any other transaction. Investing involves risk including the possible loss of principal. Past performance does not guarantee future results. Please refer to RRCM’s Form ADV Part 2 for additional disclosures regarding RRCM and its practices.