What You Can Do With This Sector Information
One of the easiest yet most underutilized ways an investor can enhance his or her returns is by focusing on sector-based trends and sector rotation. Famed investor Bill O’Neil suggest that 30% to 40% of a stock’s overall return stems from its sector’s performance rather than its individual merits; our research shows the sector makes an even bigger impact on a stock’s overall return.
Simultaneously, few investors realize just how wide the difference is between the top and bottom sector for any given timeframe. One week, one month, one year… it doesn’t matter….a well-dispersed pie chart isn’t a plan for big gains – it’s a plan for mediocrity that serves the advice industry more than it serves the investor. [The average disparity between the best and worst sector in an average year is greater than 30%.]
Bluegrass Portfolio Management offers two types of information to help investors stay abreast of leading and lagging sectors.
The first one is a percentage-change chart that visually compares the relative rate of progress of sectors, industries, or even individual stocks. These charts quickly and easily show new leaders and new slow-downs before these details are obvious to the rest of the market.
Similarly, the percentage changes for various sectors, industries, and stocks are sometimes offered in spreadsheet/table form. This removes the visual aspect of the data, but adds the element of detail. Both can show an investor important information.
The other data we offer investors to make better use of sector trends are deep, detailed looks at the sectors themselves (even broken down into the market cap level)…. Far more than you’ll find from mainstream media coverage. This includes earnings at the sector level, and a ‘drill down’ into the industries and stocks that are driving a sector’s strength, or are proving to be exceptions to a sector’s weakness.
Overkill? Nothing that better equips an investor to beat the market is overkill – especially when it’s a tactic that offers as much potential as sector-based investing does. Indeed, well-executed sector-based strategies can feasibly increase returns by anywhere from 5% to 15% per year.
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