Here’s a question – what’s the better stock, Apple Inc. (AAPL) or Microsoft (MSFT)? There are all sorts of ways to answer that question – look at SEC filings, earnings reports, tech charts, P/E ratios, sentiment, and so much more. By the time advisors may feel satisfied with their answers, all that data may have changed. Stock picking is risky. This may invite advisors to consider looking to profit cycles and the sectors that are best positioned to succeed with accelerating or decelerating profits.
What are some of the other challenges involved in stock picking? For one thing, stock picking is expensive, with commission costs and management fees going under the radar as advisors and investors try to navigate the market. Add that to the emotionality of stock picking, with investors impulsively buying or selling stocks from time to time, and that issue of cost is compounded.
Fundamentally, however, the issue of stock picking comes down to its benefits and drawbacks for the investor, especially those who want to take a more macro-oriented approach, taking into account market fundamentals that can derail a firm’s otherwise promising outlook and appeal as a stock.
That’s where profit cycles come in. Understanding the profit cycle, and what it means for how investors should look at the market, is a key part of the approach at Richard Bernstein Advisors (RBA), where managers use key indicators appropriate to the U.S. economy and markets around the world to assess when profits are accelerating, or decelerating.
Combining profits analyses with an understanding of liquidity and sentiment, RBA takes a top-down, fundamentals-driven approach that looks at broader investing sectors in an ETF like the iMGP RBA Responsible Global Allocation ETF (IRBA). IRBA takes a go-anywhere approach with an ESG screen, offering coverage across classes, regions, sectors, and styles that fit the period of the profits cycle in which markets are currently operating.
IRBA actively invests in a multi-asset fashion, charging 69 basis points for its approach and returning 1% YTD. For those investors who are interested in an asset management team that takes a top-down, true macro approach to the market based on fundamentals, RBA’s research on profit cycles may be a solid place to start.
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