GS Scores

The Group Selection Scores have performed well in the first half of 2023, not an easy feat considering the abrupt style reversal that took place in January. Value and technical indicators are struggling, but the rest of the model is more than picking up the slack.

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Exposure to commodities (and defense) has fallen rapidly within Select Industries. The primary beneficiaries of that reduction are growth-oriented groups.

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A combination of strength from Information Technology with weakness from Energy resulted in the two swapping places in our sector ranks this month. 

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Industries propelling performance have been diverse; the top-five groups are from five different sectors. Commodity-oriented, retail, and financial groups have been the primary drivers. The Leuthold Select Industries equity strategy, which chooses its thematic investments from the GS Score’s Attractive range, is up 20.2% YTD through September.

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Market environments are driven not just by industry preferences, but also by a bias toward the very largest companies. We have developed a new set of groups composed of the 10 largest companies from each sector. With several of these baskets sporting positive rankings, we felt a closer look was in order.

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The Group Selection (GS) Scores are off to a fantastic start in 2021, and the Select Industries strategy, which takes its cues from the Attractive range, has taken full advantage.

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Contrarian investing is difficult from both an emotional and implementation standpoint. Often the consensus is right, and industry groups are out-of-favor for a reason. As the saying goes, “Don’t be contrarian just for the sake of being a contrarian.”

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The Energy sector emerged as the top performer for January, a nice respite after a terrible 2020—but not exactly a good omen. Unlike in horse racing—where the concept of “early speed” has significant predictive power—the early leader in the sector-performance sweepstakes hasn’t reliably followed through in the last 30 years.

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Fundamentally, we don’t have much new to say on the disaster that Energy-sector equities have become. Mostly, we want to illustrate the danger of assuming that the stocks of commodity producers will necessarily follow the path of their underlying commodities.

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The Financials’ Group Selection (GS) Score sector-composite rating has incrementally improved over the past five months, rising to rank #2 out of 11 sectors in late June.

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In May 2015, we warned about rich valuations for small cap Biotech stocks and looked at various ways to evaluate those companies, as the majority have no approved drugs on the market, thus no revenue; therefore, valuing these companies using the conventional methodology is problematic.

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For the fifth consecutive month, the top-three rated sectors are Health Care, Consumer Discretionary, and Info Tech. The newly launched Communication Services sector (which replaces Telecom Services) debuts with a strong ranking in fourth place. Rounding out the bottom end of the rankings are Utilities, Materials, and Real Estate.

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Although Discretionary stocks broadly underperformed during October’s market decline, prominent amongst the very top industry group performers was a rather unexpected genre of industries—brick & mortar retail. Not only did this cohort hold up during October’s tumult, but many of the underlying stocks have been posting strong returns all year.

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Health Care remains the highest-rated sector followed by Info Tech and Consumer Discretionary. These sectors have ranked among the top three since June. At the low end of the rankings are Utilities, Telecom Services, and Materials, all of which have been among the bottom three positions for three consecutive months.

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Read this month's Sector Rankings.

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We revisit commentary we published in 2015 regarding the late-2014 oil price crash and review why, at that time, we believed oil prices could stay at depressed levels for a longer period than most expected. Additionally, we advise avoiding two Energy sector segments: companies with high balance-sheet risk, and Energy Royalty Trusts.

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Home Entertainment Software, Managed Health Care, and Specialized Consumer Services are among the month’s intriguing opportunities based on the current Group Selection (GS) Scores.

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A summary table detailing the Attractive and Unattractive sectors and industry groups going into 2017.

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After three consecutive years of positive performance, the Group Selection (GS) Scores struggled in 2016.

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Technology has proven a bright spot in an otherwise disappointing year for our Group Selection (GS) Scores, and it sits atop the sector rankings for the third consecutive month as of October.

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