What makes you think that?
You’re overweight Consumer Discretionary stocks
Oh, please be very careful about drawing conclusions from those broad sector classifications, I think their usefulness at a global level is very limited
How so?
Well take the MSCI World Consumer Discretionary Index for example
If you look at the Top 10 on that Index’s fact sheet, you see
– Online shopping (Amazon)
– Electric vehicles (Tesla)
– Handbags and champagne (LVMH)
– Home improvement (Home Depot)
– Hamburgers (McDonalds) and
– Coffee (Starbucks)
Amazon has a 22% weighting and Tesla is 10%
So aside from the Top 10 being 55% of the index,
who thinks handbags are driven by the same variables as hamburgers?
For some, McDonalds is a staple
And in a recession, people might engage in fewer “big pleasures” like buying Teslas but more “small pleasures” like buying Starbucks coffee
And that’s just the Top 10!
Dig deeper and it’s
– UK homebuilders in the same sector as
– French tyre manufacturers and
– Japanese gaming company, Bandai Namco,
Yet American gaming company, Electronic Arts, is in the MSCI World Communications Services sector…
Ever tried “communications” with a teenager playing computer games?
What about the other sectors?
Well, Oil and Gas companies Exxon & and Total are in the Energy sector
But Wind companies, Vestas and Siemens Energy are in the industrial sector
And Orsted which builds windfarms, is in the Utilities sector
while First Solar is in the Information Technology sector …
mmm
Thomson Reuters is in the Industrial sector
But key competitor, Factset, is in the Financials sector
Japanese Auto parts manufacturer, Toyota Industries, is in Industrials
But Canadian Auto parts manufacturer, Magna, is in Consumer Discretionary
And if you think the Consumer Discretionary sector weighting is concentrated, the Communications Services Index has 78% in the Top 10!
36% in Alphabet and 17% in Meta
So what are you saying?
When analysing bottom-up stock pickers like us, please be very careful about drawing conclusions from sector classifications – there are lots of anomalies
But please don’t tell the algos and investors who play simplistic hashtag#macroeconomic calls using sector hashtag#etfs,
their basket buying and selling creates some wonderful opportunities for hashtag#activemanagement from time to time 😉
I see you’re betting on an economic recovery, you must think interest rates will fall..
I