While we spend a great deal of time evaluating how efficiently companies invest in intellectual property, we also find it useful to take a step back and get a perspective on general trends in the world’s major markets. In order to do that, we have created ‘baskets’ of sectors for each region based on the traditional performance of that basket over the course of a business cycle. Comparing the relative performance of each basket to the overall market (in this case, the MSCI World Index) is helpful in determining long-term trends.
In the Cyclicals basket, we include the Consumer Discretionary, Energy, Industrials, Information Technology, Financials, and Materials sectors. Counter-cyclicals are comprised of Consumer Staples, Health Care, Telecommunications Services, and Utilities. Making further distinctions between Early Cyclicals (Consumer Discretionary), Hyper Cyclicals (Financials, Information Technology), Late Cyclicals (Energy, Industrials, Materials), and Growth Counter-cyclicals (Consumer Staples, Health Care) assists in refining our understanding of high-level trends.
We can see in the following chart that Cyclicals have only really outperformed the MSCI World Index in North America– and, even there, that performance has been flat for some time now. In Europe, Cyclicals have underperformed by some 30% over the last four years.
Within the Cyclical group, the Early Cyclicals (Consumer Discretionary) have held up better than the overall average– especially in North America where average relative gains are approaching 50% since mid-2011.
Taking a look at Hyper-cyclicals, it is perhaps no surprise to see that the Financial and Information Technology sectors have underperformed significantly in Europe in particular.
And Late Cyclicals have underperformed in every region (between 10-30+%) over the last four years– a trend that accelerated somewhat in the middle of last year.
Turning to the Counter-cyclical basket, we find a more positive trend overall as these traditionally more defensive sectors have gained about 10% over the last four years– much better than the ~15% decline we saw in the Cyclical group over the same time period.
Once again, North American performance stands out above the other regions, but the following chart really highlights how well Growth Counter-cyclicals have done since mid-2011 (a nearly 25% gain in the MSCI World). The dominance of the Consumer Staples and Health Care sectors seems to have consolidated some of last year’s impressive gains over the last few months. Will the positive trend re-assert itself?