- For sector-specific investment style, one needs to follow the recent trend in markets.
- Investment returns tend to depend on the economic cycle and performance of underlying stocks.
Sector-specific investment is a focused style of money invested in which companies from a single segment of the economy is selected for investment. It helps to diversify the portfolio and manage risk. However, investment return depends upon the performance of underlying stocks.
In a cyclic economy, during each phase, specific sectors outperform while some underperform. As an investor, we aim to get the highest returns possible with the least amount of risk and to achieve that focus on sector-specific exposure that performs and gives higher returns than the indexes.
Let us discuss in details important sectors which can outperform in 2021:
The technology sector is a crucial driver for the economy’s growth of countries and regions. In recent years because of technology advancement, millions of people can work efficiently from home with better productivity which was not possible a few years back.
The technology sector includes companies that manufacture computer hardware and other devices, and few companies belong to software development, data analytics and other services.
Some FTSE100 listed companies from the technology sector:
- Sage Group Plc (LON: SGE): The company provides cloud-based technology solutions to small and medium businesses. It recently announced to attain net zero emissions by 2040 and will also reduce its carbon emissions by half by 2030.
- Aveva Group Plc (LON: AVV): It offers engineering and industrial software solutions supporting artificial intelligence and internet of things (IoT) products. The company’s acquisition of OSIsoft for $5.0 billion recently received the clearance from Committee on Foreign Investment in the United States.
The Healthcare sector is vast with multiple sub-sectors, including drugs and vaccine developer and manufacturer, hospital operators, medical instrument makers and biomedical. This sector is considered as the defensive sector as people will need to see their doctors and avail healthcare facilities through all phases of the economic cycle. Countries with better health care infrastructure can manage the pandemic situation in a better way.
Key future trends in the healthcare sector:
- Telehealth and virtual care of the patient.
- Predictive analytics for population health management.
- Improving and digitalization of consumer experience.
Some FTSE100 listed companies from the healthcare sector:
- AstraZeneca Plc (LON: AZN): The company develops and manufactures medicine and vaccines. The company had recently re-stated that the vaccine co-developed with Oxford University is efficient against the Delta as well as Kappa variant.
- Smith & Nephew Plc (LON:SN.): The company together with its subsidiaries, Smith and Nephew plc, develop, manufacture and market medical devices. The first quarter earnings of the company indicated a broad-based recovery in the business.
Consumer Discretionary sector:
The consumer discretionary sector comprises companies that deal in goods and services. This business segment is more of non-essential, more of luxury or pleasure like Automobile, hotels, leisure and luxury goods. The demand for these services grows when consumers have more money and are optimistic about their employment position and finances; hence when consumer confidence and economic condition strengthens, the consumer discretionary sector mirrors it.
Key trends in the industry:
- To reduce carbon footprints, manufacturers are moving towards the sustainable resource.
- Shift towards online sales and focus on improving the consumer experience.
- Building robust supply chain.
Some FTSE100 listed companies from the Consumer Discretionary sector:
Next Plc (LON: NXT): The high street retail company is into the retailing of clothes, home products, footwear and accessories. It operates through its retail shops and online website. The company had witnessed a sharp drop in profit for the last year, though it has raised its profit projection for the present year.
Whitbread Plc (LON: WTB): operates hotel and restaurants in the UK, Germany and internationally. The company recently faced a backlash from shareholders over its executive bonus plans; over 36 per cent voted against resolution two for approval of the annual report on remuneration.
Choosing the right sector for higher returns doesn’t take luck or university-level knowledge. All it takes is a brief study on recent market trends and an analysis of the past performance of the sector and its returns with respect to a benchmark index. However, one needs to keep in mind that past returns cannot guarantee future returns.