Here are the big sector winners of the stock market recovery.
The bull run since last March has been led by a select bunch of industry sectors. The FTSE All-Share is up around 50%, but a quarter of the FTSE's 40 industry sectors have risen by double that -- or more.
It's been the usual pattern of recovery, with cyclical sectors leading the way. The earnings of companies in these sectors are highly sensitive to the state of the economy. They fall hard when investors see troubled times ahead and rise exuberantly when optimism returns.
Here are the big sector winners from 6 March 2009 to 25 January 2010:
Basic materials
| Sub-sector | Number of
companies | Gain/loss
(%) |
|---|
| Forestry & paper | 1 | +185.7 |
| Industrial metals | 3 | +122.9 |
| Mining | 19 | +114.6 |
In 2007 commodities guru Jim Rogers proclaimed that we were in the middle of a commodities super-cycle which would run for years. A super-slump in prices in the second half of 2008 put paid to that, but 2009 saw a strong rebound, with some miners, such as Kazakhmys (LSE: KAZ) and Vedanta Resources (LSE: VED), multibagging from their lows.
Industrials
| Sub-sector | Number of
companies | Gain/loss
(%) |
|---|
| Industrial engineering | 13 | +97.1 |
Industrial engineering has been the best-performing sector in the industrials category, though several other sectors in the category have also done well.
Engineers are notoriously cyclical. Many leading names, such as Weir Group (LSE: WEIR) and IMI (LSE: IMI) were ruthlessly shunned by investors when the market turned bearish but bounced back with a vengeance when the clouds lifted.
Consumer Goods
| Sub-sector | Number of
companies | Gain/loss
(%) |
|---|
| Automobiles & parts | 1 | +191.3 |
| Leisure goods | 3 | +121.7 |
| Personal goods | 3 | +103.2 |
Axle-making engineer GKN (LSE: GKN) could easily be put in the industrial engineering sector, but in the FTSE classification it gets a sector to itself under consumer goods.
There are several defensive sectors in the consumer goods category, such as food producers, which were not hit too hard in the downturn. However, companies in the leisure and personal goods sectors, which tend to be more exposed to discretionary consumer spending, were hit harder and rebounded more strongly -- for example, luxury goods company Burberry (LSE: BRBY).
Financials
| Sub-sector | Number of
companies | Gain/loss
(%) |
|---|
| Banks | 5 | +119.6 |
| Life insurance | 9 | +144.2 |
Most sectors in the financials category are cyclical to a greater or lesser degree, but banks and life insurers have been on a real rollercoaster ride.
Royal Bank of Scotland (LSE: RBS) was the sixth largest company in the FTSE 100 in 2007, but became a penny share -- priced for demise or nationalisation -- in the darkest days.
Life insurers such as Aviva (LSE: AV) also saw their share prices plummet. But both sectors have bounced 100%+ from the bottom.
Technology
| Sub-sector | Number of
companies | Gain/loss
(%) |
|---|
Technology hardware
& equipment | 9 | +123.4 |
The technology sector was by no means the hardest hit when the market turned down. But it has still enjoyed a strong run since March, making it one of the few sectors to regain its pre-bear market level. Companies which have doubled in price include sector heavyweight ARM Holdings (LSE: ARM).
Other cyclicals
The FTSE sector level classification I've used isn't perfect, and you'll find a few sub-sectors which have also been big winners.
To give one example, the 'Household Goods & Home Construction' sector includes such defensive champions as Reckitt Benckiser (LSE: RB), which mask the spectacular fall and subsequent recovery of the likes of Taylor Wimpey (LSE: TW) and Barratt Developments (LSE: BDEV) in the famously cyclical housebuilders sub-sector.
You'll also find some highly cyclical businesses in retail, media, support services, and leisure and travel -- though some doughty defensives also sit in these sectors.
Sector rotation
In the ebb and flow of the stock market, defensive sectors, such as food and utilities, are good for 'Beating The Bear', but cyclicals are the hot sectors for 'Riding The Bull'.
In theory you can enhance your investment returns by being in the right place at the right time -- constantly moving your money out of sectors that are about to peak and into sectors that are about to take off.
Get it wrong, though, and you can seriously damage your wealth. It's a lot easier to see sector cycles when you're looking backwards than it is when you're looking forwards.
> If you're in the market for buying shares, consider opening an online broker account with The Motley Fool's Share Dealing Service. You can buy and sell shares in real time for a flat rate of just £10. Click here to find out how you can open an account for free today. There is no obligation to trade.
