Fisher Investments Editorial Staff
Market Cycles

When Parts Move the Whole

By, 01/07/2011
Story Highlights
  • Sometimes high level performance (global, regional, or sector) deserves a more granular explanation—sector performance, for example, can be driven by a few underlying industries.
  • Largely unheralded, Consumer Discretionary has outperformed in the current bull market thanks largely to two industries.

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Editor's Note: MarketMinder does NOT recommend individual securities; the below is simply an example of a broader theme we wish to highlight

We often talk about capital markets at the macro level—about what drives the stock market on a global, regional, country, or business sector level. But sometimes, the macro result deserves a more granular explanation. Sector performance, for example, can be driven by a few underlying industries—the more specific, smaller business segments that comprise sectors. 

For example, take Consumer Discretionary since 2009's bear market lows. Compared to an equivalent period in the beginning of the last bull market, Consumer Discretionary has done much better relative to the MSCI World Index.

Source: Thomson Reuters

Why the difference? Consumer Discretionary is made up of 12 industries, but the 7 largest account for 88% of the sector's weight: Media (20%), Automobiles (20%), Hotels, Restaurant, and Leisure (13%), Specialty Retail (13%), Textiles, Apparel, and Luxury Goods (10%), Multiline Retail (6%), and Auto Components (6%).

For the most part, the Consumer Discretionary recovery this time around is similar to the previous bear except for two overachieving industries—Media along with Textiles, Apparel, and Luxury Goods. Combined, the two industries account for only 30% of the Consumer Discretionary sector by weight. With all else being equal (industry-wise at least), some specific differences within the two industries have led to relative outperformance of the sector.  

Media's relative outperformance in this bull market can largely be attributed to the fact it played a significant role in the previous bear market—media shares were battered by the giant, ill-conceived AOL Time Warner merger at the peak of the market. Textiles, Apparel, and Luxury Goods' outperformance during this recovery is being driven by new Emerging Markets demand—which has grown significantly since the last recovery. The rapidly expanding middle class in places like China and India account for nearly 40% of sales for many luxury goods companies, while providing the prospect of substantial future sales opportunities—a boon for the industry coming off 2009 market lows.  

Not all industries are created equal. Unique factors, as you can see above, will cause specific industries to out- or underperform—affecting the returns of the sector they make up. And as Consumer Discretionary in 2010 shows, two industries, comprising only 30% of a sector, can have significant impact. 

*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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