S&P 500 Sector Situation

S&P 500 Sector Situation

We often hear about what’s happening with the S&P 500 – for the smarter people you hear the S&P500 is up or down X%, for the not so smart ones you hear the S&P500 is up or down XXX points (usually with some added hyperbole, etc).  But what’s often not talked about as much, is what’s going on below the surface… not down to stock level, but at the sector level.  This article sheds light on trends in sector performance and weightings that have meaningful implications for investors.

Get Our Activist Investing Case Study!

Get the entire 10-part series on our in-depth study on activist investing in PDF. Save it to your desktop, read it on your tablet, or print it out to read anywhere! Sign up below!

Check out our H2 hedge fund letters here.

Aside from the observations around winning vs losing streaks on the sectoral performance rankings (it's rare to see a certain sector at the top or bottom of the performance ranking table for more than a year or 2 - contrarians take note!), the change in market capitalization rankings is profound.  Around 1995, the sector weightings of the S&P500 were fairly evenly disbursed, with the top sector at the time (consumer discretionary) at 15% and the bottom (utilities) at 5%... this contrasts to now IT at the top with 25% and telecoms at the bottom with 2%.

Value Partners Asia Bets On India In Hopes Of “Demographic Dividend”

Value Partners Asia ex-Japan Equity Fund has delivered a 60.7% return since its inception three years ago. In comparison, the MSCI All Counties Asia (ex-Japan) index has returned just 34% over the same period. The fund, which targets what it calls the best-in-class companies in "growth-like" areas of the market, such as information technology and Read More

Basically there has been a fairly steady and systematic shift in the make up of the market.  You can see this in the performance attribution chart, where the bulk of returns in the last few years has been accounted for by financials and IT.  Most people will dismiss this as just a feature of the markets, but for the passive investor, or the active allocator who opts for passive exposure, investing in equities today has become a different bet.

The key takeaways from this analysis are:

-It's rare for a sector to spend more than 1-2 years at the top or bottom of the annual performance rankings (take note Tech, financials, and energy).

-IT remains the top sector, and has grown to 25% (similar to levels seen in 1999).

-Sector weightings have become a lot more dispersed (a few very large, and a few very small) versus back in 1995.

-With the bulk of returns being driven by a few large sectors, it's important that passive investors understand the changing nature of the S&P500 beast.

  1. S&P500 Sector Returns: The "quilt chart" shows the color-coded ranked annual performance across the major S&P500 sectors, and there are a couple of interesting takeaways and standouts.  For one, the top performing sector usually, at most, can only get away with 2 really outstanding years, and a similar observation can be made for the worst performing.  Certainly food for thought when you look at say energy vs IT.

  1. S&P500 Sector Market Cap Weights: One impact of price performance is changes in market capitalization representation, or sector weights.  There's a few really interesting standouts on this chart, the obvious is the domination of IT - which may bring back memories of 2000 for some.  What may be less obvious is the starkly different landscape now vs back in 1995, where the index has become much more concentrated in a few dominant sectors e.g. financials and technology.

S&P 500 Sector Situation

  1. S&P500 Sector Performance Attribution: The final chart combines the types of data seen in the first two charts to give a breakdown by sector of S&P500 performance across various timeframes. Perhaps unsurprisingly given the previous chart, financials and IT accounted for the majority of returns ... #FinTech anyone? Again it goes to highlight how concentrated the market has become, and while this has implications for sector rotation, it's also a critical point for those taking passive equity exposure - today's S&P500 is not the same as that of 1995.

S&P 500 Sector Situation

Like what you see?  Why not take a free trial of our premium offering for an extra level of service and insight.

Follow us on:

LinkedIn https://www.linkedin.com/company/topdown-charts

Twitter http://www.twitter.com/topdowncharts

Article by Callum Thomas, Top Down Charts

Updated on

Previous article Android P vs iOS 11: Google Forges Ahead With New Developer Preview
Next article Can Ripple’s XRP Unseat Bitcoin As King Of Crypto?
Topdown Charts: "chart driven macro insights" Based in Queenstown, New Zealand, Topdown Charts brings you independent research and analysis on global macro themes and trends. Topdown Charts covers multiple economies, markets, and asset classes with a distinct chart-driven focus. We are not bound by technical or fundamental dogma, and instead look to leverage any relevant factor to capture the theme. As such, here you will find some posts that are purely technical strategy, some that just cover economics and data, and some posts that use multiple inputs to tell the story and identify the opportunities. Callum Thomas Head of Research Callum is the founder of Topdown Charts. He previously worked in investment strategy and asset allocation at AMP Capital in the Multi-Asset division. Callum has a passion for global macro investing and has developed strong research and analytical expertise across economies and asset classes. Callum's approach is to utilise a blend of factors to inform the macro view.

No posts to display