Sector Analysis

Even within the same country, different sectors vary widely in performance and the best performing sectors in one year could be the worst performing in the next. This provides tremendous opportunities to add value via sector allocation.

Which sectors will outperform and which will underperform? Fund managers usually rely on sector data to decide if a sector will do well. For example, one may look at loans growth for the banking sector and property prices for the real estate sector. However, deciding if a sector will do well per se does not help us to make sector allocation decisions. When times are good, almost all sectors will do well. What we need is a tool to compare one sector with another. We can’t compare loans growth with property prices. We can only compare what is common to all sectors i.e. valuation, earnings, sales, dividends, etc. This is what our research does. We compare these data from all sectors with the same data from market. And this helps us to determine which sectors will outperform and which will underperform the general market.

For each sector, we show the sector’s average premium or discount to the market and where it is at currently. We also show how the fundamentals of the sector (i.e. earnings, sales, cash flow, book value, dividends) will change relative to the fundamentals of the whole market. More information on this methodology can be found in our Market Relative Performance Page.

A sample study is done on the US Materials sector. Based on the chart below, the US Materials sector is expected to outperform the market. Current valuation relative to the market is at the average level and fundamentals will improve faster than the general market.


For funds that are sector specific, we provide research to determine the expected absolute performance of the sector. Taking the same example of the US Materials sector, we see that the US materials sector is overvalued based on the Composite Valuation Indicator. While the fundamentals are still strong, there is risk of correction. 

As describe in our Market Absolute Performance Page, this Composite Valuation Indicator is derived from the best combination of five indicators namely, Price to Earnings, Price to Sales, Price to Cash Flow, Price to Book and Dividend Yield.

Some asset management companies manage a global sector fund. We are able to provide you with global sector valuation charts like the above to help you in your global sector allocation. Read more

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