Which sector will do best?

This week I came across this sector performance chart.  I first saw such a chart in 2005 when I was a financial advisor with Edward Jones on the South shore of Montreal.

Sector performance chart

Its main message is that when you have a diversified stock portfolio, it is difficult to predict which sector (i.e. stocks) will do best.  Note the dynamic nature of the various sector returns over the years.  To help me manage my stock portfolio, I use two simple rules:

  • Never have more that 5% of my portfolio in one stock – Protects me from the next Nortel
  • Allocate funds by sector in a manner similar to the S&P 500 index

In order to allocate funds similarly to the S&P 500 index, I use my Stock allocation tool.  By inputting the value of each stock I own, the table shows me if any sector is “due for harvesting” and which sector is below my allocation target.  Such a tool is what the investment industry calls “neutral sector allocation”. Basically, it’s a stock portfolio that follows the same funds allocation as the S&P 500 index.

As the S&P 500 index sector allocation varies from year to year, I revise my tool’s sector allocation to the average of the previous 10 years.

This tool definitely keeps me away from stocks prices that increase too much too quickly.


Which stock in each sector will do best?  I have no idea.

Actually, I do not worry much about stock selection.  I look for companies I understand, that increase their dividends on a regular basis.

I’m more careful about keeping my asset and stock allocation in line with my targets.

Note that when a stock’s price takes off… I sell part of that holding to buy a stock that is not so popular.

Until next time,

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