Investors who like a more hands on approach to equities should consider the potentially changing conditions among the various market segments and look to sector-specific exchange traded funds to capitalize on the shifts.
For instance, Fidelity’s sector strategist, Denise Chisholm, argued that technology, consumer discretionary and health care sector stock fundamentals look strong while the energy sector faces ongoing risks with a global supply glut.
“Technology fundamentals looked solid in Q2, driven by accelerating EBITDA growth and healthy free-cash-flow margins,” Chisholm said in a research note. “Consumer Discretionary and Health Care also scored well on multiple measures. Energy continued to lag, but moderating U.S. oil production and global crude stockpiles could be dynamics to watch moving forward.”
ETF investors who want to track these various market segments can utilize sector-specific plays, such as the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC), Fidelity MSCI Consumer Discretionary Index (NYSEArca: FDIS), Fidelity MSCI Health Care Index ETF (NYSEArca: FHLC) and Fidelity MSCI Energy Index ETF (NYSEArca: FENY).
In an extended bull market environment with equities pushing toward new record highs, many participants have grown concerned over the lofty valuations. The S&P 500 was trading at a forward 12-month PE of 17.4, compared to 5-year average of 15.4 and 10-year average of 14.0. Nevertheless, financials and telecom sectors appear relatively inexpensive.