Group Report

The Energy sector has improved across a variety of factor subsets, with particularly large jumps in growth and macro/economic categories. For investors weighing investment ideas in the Energy space, we highlight the three Attractive groups for consideration.

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Financials has occupied the #1 overall ranking for all of 2021, thus far, but its absolute score has increased throughout the year due to well-rounded strength across the factor spectrum, reaching levels not seen in more than twenty years.

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After years of languishing in the rock bottom of Group Selection Scores and sector rankings, Energy exploded higher this month, jumping from 10th lowest (out of eleven broad sectors) to 3rd highest in our composite rankings.

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If there are shortages, bottlenecks, and commodity inflation everywhere, why is the rating for the Materials sector so uninspiring? Although valuations are compelling for Materials groups, the overall decline in the rankings can be traced to EPS revisions and macro influences, like the U.S. dollar and low rates.

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Automotive Retail currently ranks Attractive per our Group Selection Scores. This group offers a range of exposure to a bumpy—but recovering—U.S.-auto industry made up of car dealerships and auto parts & service retailers.

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Impressive strength across the factor spectrum implies that the recent pop in the long-time beaten-down Financials sector should have more room to run. We highlight five attractively-rated Financials groups for investment ideas beyond the popular big-bank-concentrated Financial sector ETFs.

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Housing-related groups have catapulted to the very top of our rankings. Several of these are among the top-ten performers of our 120-group universe. Despite the strong returns for these industries, our GS Scores indicate that this theme has even more room to run.

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As new home sales skyrocket alongside plummeting mortgage rates, we revisit the historical relationship between Homebuilding stock returns and industry-specific factors that impact housing affordability and homebuilders’ bottom lines.

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We examine a variety of industry groups with noteworthy relative price action on both “reopening” and “closed economy” days. Our objective is to shed more light on the industry groups that are consistently moving together on these days.

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Health Care has been resilient this year, but will that continue in the run-up to the presidential election?  We look at the performance of the Attractively-ranked industry groups and how they have historically performed leading up to an election and post-election. 

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A major driver of the division in recent performance among retail groups has been the burgeoning “nesting” theme. Stuck at home, consumers are directing their dollars toward indoor and outdoor home upgrades. A related theme has now established itself in the upper rankings of our group work—Housing.

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Following the market bottom, the rebound across retail industries has been robust, but a divide has emerged. Consumers’ needs and behaviors have dramatically shifted as former lifestyles were uprooted. This swift change in economics has resulted in clearly-defined sets of winners and losers among retail industries.

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A brief overview of two (very different) Attractively-rated Discretionary groups that are longstanding SI portfolio holdings that have managed to maintain their “Attractiveness” throughout the tumult.

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Since the market peak on February 19th the S&P 500 Health Care sector is down only 1.1%. Among the S&P 500 sector indexes, Health Care and Consumer Discretionary are the performance leaders.

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Health Care has been the best performing sector following mid-February’s market peak. Its robust relative performance during this bear market isn’t terribly surprising given the sector’s defensive qualities, but it has impressively outpaced other safe haven areas.

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The economic outlook has turned increasingly cautionary, investors are on edge, and the search for yield persists. Because the typical defensive/high-yielding plays are generally both expensive and unappealing in our group work, we highlight several less conventional groups that may be poised to outperform.

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Construction Materials moved to an Attractive rating, fueled by growth and price momentum. Surprisingly, digging into the numbers revealed it to have lower beta dynamics. Based on this, we examined the cyclical nature of the group to better understand the impact it may have on overall portfolio cyclicality.

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Even though the S&P 500 roared ahead by nearly 50% over the last three years, the traditionally low beta slow-growth Utilities sector outperformed during that powerful upswing. Nevertheless, today Utilities seldom look attractive by active managers and calls to overweight the sector are scarce.

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The groups we examine here are particularly interesting because they are a diversified mix across sectors with varying macro-factor relationships and risk profiles. They have scored well for a long period of time and have been long-term positions in our SI portfolio.

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We take a look at the group’s constituent transformation, its robust GS Score, political/regulatory tailwinds, and its ability to withstand and hold up well during market downturns and recessions.

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