Certain sectors run hotter than others at any given time in the markets e.g. now it might be Gold stocks, a little while back it was biotech's and before that it was banks and financial stocks including BNPL type fintech stocks. We don't have to know the exact reason, it may be due to funds management rotating from sector to sector or some economic reason such as flight to safety or yield but we know that this is undeniably a characteristic of the market.
The first question is to whether you can directly tap into the sector as a whole. I know there are index funds which specialize in some of these sectors, but in the Australian market, my feeling is that you can't necessarily pick a sector at random and have an index fund ready for that.
As to why there are hot sectors and unloved sectors, in my mind it comes down to momentum. As any good momentum investor will tell you, half of it is based on genuine growth opportunities in that area, and the other half is based on FOMO (Fear Of Missing Out). Success begats success. I think gold has done well of late because people feel the market is overheated (rightly or wrongly), and so have started moving towards defensive stocks. By contrast, consumer discretionary is down 2.7% for the year. I see the catalyst for this as the stagnation in the growth of Australian wages. Some people have real fears we'll end up more like America, where a minimum wage job can take you below the poverty line.
What will be good to find and discuss is how do the experienced/professional investors/traders find the hot stocks in the hot sectors ? Is there a recipe/scan to use or is it through doing a lot of stock research like I do and realising that certain stocks are getting attention e.g. it could even be very specific niche segment of the market e.g. Cannabis stocks within Biotech space or Lithium stocks within Mining space etc.
You've really got two choice here. You either predict what the new hot sector will be, and that relies often on seeing what the media is obsessed with. Or, you look at the recent performance of a sector and make a bet that it will continue its trajectory.
Personally, I'm a bottom up stock picker. I completely ignore sectors when selecting stocks. However, I'm an "inadvertent" sector picker. Very often the stocks I buy will end up being concentrated in a particular sector, and I’m OK with that. Of late, I’ve been buying a lot of gold stocks. A while back, it was iron ore, biotech, and fintech.
Finally why is this important ? Well let's not kid ourselves, we are all here to make a bit of dough right. Few members may be far too well off and only visit to discuss politics and health
. As for the rest of us, we want to know which sectors are moving right?
Of course!
If we have ten stocks from different sectors that have the same setups based on TA/FA which ones would you choose? I know from experience if you pick the few in the cold sectors they'll go sideways or even lose you money but if picked from the leading (hot) sectors they have a much better chance of galloping along to higher ground. Without having the insider knowledge of where the fund managers and institutions are targeting, how do we target the winning sectors ?
Although I don’t choose based on sectors, I have let it colour my thinking a bit. A few months back when the Chinese were blocking our iron ore shipments at their ports, iron ore stocks were still doing pretty well. I used that as part of my thinking. Recently, coal seems to be the unloved industry, so even if coal stocks were doing well, I feel they’re potentially a riskier area.
Let's get the discussion started on another successful Zaxon thread.
Ya for successful Zaxon threads! Lol.