As investors look to sector plays to enhance their portfolio, Bartolini explained that there are a number of sector strategy implementation approaches, including a top-down, thematic, bottom-up or technical investment strategy. Through the top-down approach, an investor would survey macro economic variables, analyze business cycles and position towards sectors that may benefit from changes in macroeconomic environment. The thematic approach is used to identify secular industry trends and harness a long-term growth trend within a particular segment of the economy. A bottom-up approach evaluates sector fundamentals, such as valuations and earnings trends, and positions towards sectors that show attractive valuations and/or strong sentiment. Lastly, the technical approach would overweight/underweight sectors based on recent performance.
For example, in a top-down approach, the utilities, consumer staples and health care sectors have historically outperformed during a recession to help navigate market downturns.
Looking ahead, Forsyth believed that intelligent infrastructure could be a thematic opportunity as investors gain exposure to companies helping develop smart buildings and roads, sensors, and intelligent meters, which may benefit from the transition to an intelligent, adaptive, and connected infrastructure and increasing demand in infrastructure spending in coming years. For instance, the SPDR Kensho Intelligent Structures ETF (NYSEArca: XKII) includes companies whose products and services are driving innovation behind intelligent infrastructure.
“An intelligent infrastructure sector exposure may enhance the growth potential of a portfolio by capturing a long-term secular growth trends,” Forsyth said.
Along with the new technologies theme, something like the broader SPDR Kensho New Economies Composite ETF (NYSEArca: KOMP), which includes “New Economy” industries, ranging from 3D printing to genetic engineering, can provide investors access to a comprehensive and diversified set of companies propelling the new economy.
Financial advisors who are interested in learning more about the market sectors can watch the webcast here on demand.