2015: Growth Counter-Cyclical Kind Of Year by Eric Bush, CFA, Gavekal Capital Blog

When we look at the broader stock market, we like to break out the 10 economic sectors into five smaller groups: growth counter-cyclicals (health care, consumer staples), defensive counter-cyclicals (telecom, utilities), early cyclicals (consumer discretionary), late cyclicals (energy, materials, industrials) and hyper cyclicals (financials, information technology). It’s a useful template for understanding where we are in the cyclical (i.e. early cyclical are outperforming late cyclicals) or if investors preferring defensive over offense (i.e defensive counter-cyclicals are outperforming hyper cyclicals). Please note that all performance data is in USD.

Over the past year, we have had a market that once again prefers growth counter-cyclicals over everything else. Consumer staples has had the best median performance in the developed world as it has gained nearly 13% year-to-date. Over the past four years, consumer staples has had the fourth best performance. The third best performing sector in the developed world has been health (10.7%). Health care has been by far and away the best performing sector over the past four years has it has returned nearly 25% more than the second best performing sector during this time (consumer discretionary). Telecom and utilities, defensive counter-cyclical stocks, have been the the second and third worse performers over the past year and over the past four years. Energy has been the worst performing sector over the past year and past four years. In fact, energy is the only sector where the median performance over the past four years is negative.

The trend of growth counter-cyclicals outperforming everyone else is even more pronounced in the emerging markets. Health care has absolutely dominated in 2015 as the median stock has returned 38.6% this year (the average stock is up over 82%!). Health care is also by far the best performing sector over the past four years. The second best performing sector in the emerging markets in 2015 has been consumer staples. Health care and consumer staples are the only two sectors that have positive median performance YTD. The worst performing sectors in the emerging markets in 2015 have been defensive counter-cyclicals, followed by hyper cyclicals.