How To Invest In Sectors

How To Invest In Sectors – Struggling to find quality long-term investments in 2021? Which sectors could win? Read more in this article.

In recent weeks, many people have asked me what sectors people should invest in now. After all, the vaccination program has now been implemented, and in theory the economy should gradually recover in 2021. Glove stocks are now becoming more unfavorable as investors move to other more traditional sectors. I’m not an investment expert and I’m not qualified to give advice on this, but I can talk about the sectors that interest me in Malaysia now.

How To Invest In Sectors

I use Bursa Malaysia’s 13 sector classification to identify the 3 sectors I am currently looking at. They include

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The three industries I am researching are financial services, real estate, and consumer products and services. They are considered rather boring to invest in, but tend to have a strong correlation with how the economy is doing in general. If you are looking for “exciting” sectors to invest in, I’m afraid this is not the right article to explore them.

Economic recovery: Financial services companies tend to be closely correlated with the performance of the economy. The higher the economic activity, the higher the share of financial service activities such as lending, borrowing, transactions, etc. Financial services are companies with a steady dividend yield, so they are great for long-term investments right now.

Undervalued: Banking and financial stocks were hit hard during the pandemic, and while they’ve recovered, they’re still undervalued, trading at less than 13 times price-to-earnings. Below are companies that currently trade less than 13 times.

Profit Potential: The sector is currently trading at 15,213, with a pandemic low of 10,885 in March 2020 and a high of 16,046 in December 2020. That’s up about 4.1% in a short period of time. term and 5.5% long term with the price. 3 month short term technical analysis is creating an ABCD pattern that you can take advantage of. It is currently at point C with a possible increase to 15,835 in the next downturn at point D.

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The real estate sector suffered greatly during the pandemic, and to this day has not recovered to pre-pandemic levels. Since most developers in 2020 did not make much profit, or worse, losses, it can be difficult to rely on finding undervalued real estate companies for their price-to-earnings ratio.

Economic recovery: The performance of real estate companies is inevitably linked to whether people have jobs and high incomes. Only then will they be able to afford to buy an apartment and their income will increase. Now, with the recovery, jobs will come back and salaries may rise, so the performance of real estate companies is expected to rise.

Undervalue: This is difficult to do because many real estate companies make losses, making it difficult to analyze price earnings. That’s why I only choose real estate developers who made money in 2020 at a price-to-earnings ratio of less than 15 times and that’s big too. Big means they have a market capitalization of more than RM750 million.

Profit potential: The real estate sector is currently trading at about 779, which is still below the pre-pandemic level of 823. It will increase by about 5.6% to 15.5% depending on how long-term the real estate sector can real recovery.

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5.6% can be reached if the market comes back to the pre-pandemic level of 823 (the first resistance). 15.5% is more long-term as it has to trade up to another resistance level of 900. However, 5.6% could be more realistic as the home ownership campaign could end as early as June 2021, providing less market support.

Consumer goods and services companies are basically retail businesses that sell all kinds of products and services, such as agricultural, automotive, consumer services, food and beverage, household goods, personal goods and travel. During the pandemic, they are suffering greatly due to the controlled restrictions on movement because they are still very brick and mortar businesses.

Economic recovery: With the introduction of the vaccine and easing of movement restrictions, consumer products and services will benefit from increased traffic and consumer optimism.

Undervalued: Like real estate companies, many consumer goods and services companies made a loss in 2020. Like real estate companies, I only looked at companies that made a profit in 2020 with a market capitalization above RM1 billion and a price- to-earning. less than 15x.

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Profitability: There are currently about 644 exchanges in the consumer goods and services sector, and the lowest rate was 484 in March 2020. The growth of the sector is about 2.5–7.1 percent. You can get a 2.5% return on trading back to the pre-pandemic level of 660, and you can get 7.1% on trading to the second resistance level of 690.

An economist and investor with a keen interest in the field of macroeconomics and finance and their integration with industry strategies can strengthen the core of the portfolio by looking for alpha opportunities or perhaps diversifying the portfolio’s risks. They can also be used to adjust a portfolio based on cyclical fluctuations or cyclical trends.

Industry investing can be an effective tool for building a portfolio. Because economic variables and business cycles affect parts of the economy differently, sector-specific investment strategies can help investors target and adjust portfolios according to their goals to achieve four important goals:

Sectors have historically had a wider spread than styles. In fact, returns have spread across sectors wider than styles every year for the past two decades, and on average more than twice as wide – even when we consider style-based strategies in the small-cap universe.

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The economy moves in cycles. Each stage tends to have characteristics that affect sectors or industries differently, meaning that certain sectors may perform better or worse at different stages. Sector-specific strategies allow investors to adjust their portfolios to cyclical fluctuations by increasing allocations to sectors that favor the current economic phase and decreasing allocations to sectors that are facing macro headwinds. Learn more about creating an industry plan for business cycles here.

Because sectors are closely aligned with certain economic variables, sector-specific strategies can help capture secular or cyclical industry trends based on macroeconomic relationships (interest rates, inflation, oil and the dollar).

For example, consider that US regional banks have a higher beta sensitivity to 10-year Treasuries than the broader market, as shown by the S&P 500 (0.43 vs. 0.11).

On the other hand, utility has a minimal beta (0.03). Investors who are confident in the direction of long-term returns can use sector-based ETFs focused on regional banks or public utilities to enhance their portfolios’ positive or negative beta exposure.

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Sector strategies can also be used to take advantage of long-term growth opportunities created by secular changes or technological trends. For example, there has been a boom in pharmaceutical innovation in the pharmaceutical industry over the past decade, particularly in biotechnology. And currently, as measured by market share of prescription drug sales, the share of biotechnology-based products has increased from 17 percent in 2010 to 30 percent in 2020.

Driven by this secular shift, biotech stocks have cumulatively outperformed the broader healthcare sector by 85% and the S&P 500 by 157% over the same period.

Collecting shares is not easy. An investor can get the sector call right but the stock price wrong: Historically, over the past 18 years, more stocks (34%) have outperformed their industry average by more than 10 percent than more than 10 percent (28%). %, as below.

Compared to a small group of stocks designed to catch thematic trends, a sector investment can help achieve the desired exposure without taking on too much risk per stock. For example, instead of choosing three or four companies focused on driverless cars to meet the boom in autonomous vehicles, look for a diverse but focused thematic industry exposure that focuses on the many companies innovating in that space: the main players and the supply chain. suppliers. This approach aims to provide targeted exposure to the theme, but reduce the risk to the share if the stock purchase was wrong, even if the theme is correct.

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From the point of view of the portfolio as a whole, taking into account the aforementioned characteristics, sector strategies can strengthen the core of the portfolio by seeking alpha opportunities or perhaps diversifying the portfolio’s risks. And there are many different ways to build sector rotation strategies (technical, fundamental, macro-based).

ETFs allow investors to implement simple or sophisticated strategies with great precision. We launched the first sector package in 1998, and today the SPDR family covers 11 GICS® sectors and 21 industries, an active sector rotation ETF, and thematic sectors focused on companies driving technological innovation in specific sectors, such as smart transport, clean electricity. and smart infrastructure.

1FactSet, 31/12/2021. 2Bloomberg Finance L.P., December 31, 2021. Past performance is not a reliable indicator of future performance. 3World Preview 2021, Outlook to 2026, Evaluate, July 2021.

Beta Measures the volatility of a security or portfolio relative to the market, usually measured

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