Sector Rotation – Alive and Well

Just to review – the natural order of sector rotation

Leading Stock Sectors - Financial, Utilities & Telecom

Coincident - Consumer, Health Care, Industrial & Technology

Lagging Stock Sectors - Energy & Materials

On a recent appearance on BNN (December 31, 2013), I displayed a table that set out the one-year change in the top four sectors of the TSX Composite along with the following text, “The haves and the have-nots: For the TSX in 2013 it was a year for stock picking --- due to the haves and have-nots. Note the table displaying the top four TSX sectors by weight change through 2013. As a group they total about 80% of the TSX Composite. As we can see the big capitalization winner was the financials and the big loser was the materials sector.”

So far this year the TSX Materials ETF clone (XMA) is up 7.9% (12-trading days) and the TSX Financials clone (XFN) is up only 0.4% - so there are likely four reasons for the materials strong outperform over the financials.

1) The weak Canadian dollar – good for exports.

2) Brutal tax-loss selling of the sector in late December

3) Likely an improving global economy

4) Portfolio re-balancing by portfolio manages who reduce over-weight sectors and add to under weight sectors.