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Health care wins: 2013 sector report

Another good year for this sector. Tech, consumer stocks could be worth exploring in 2014.

  • Active Trader News
  • – 12/19/2013
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Health care reform may be a hot-button issue for many, but that hasn't stopped this sector from being the best performing group of stocks to date in 2013. Will health care continue to lead in 2014? What other areas of opportunity might there be?

Best in show

While 2013 isn't over yet, health care narrowly outperformed the consumer discretionary sector year-to-date, 34.5% to 34.1%, as of December 18, 2013 (see the table below).

Health care’s outperformance over the past several years has been notable, given the ongoing upheaval in the industry. In fact, since the passage of Obamacare (officially the Affordable Health Care Act) on March 23, 2010, health care stocks have outperformed the broad market, gaining 75%, compared with a 57% rise in the S&P 500® Index.

Health care narrowly edges consumer discretionary, financial stocks
Sector 1-Month YTD 5-Year
S&P 500 -0.9% +24.9% +100.5%
Energy -2.5% +17.3% +68.9%
Materials –1.3% +17.4% +102.2%
Industrials +0.2% +31.9% +114.2%
Consumer Discretionary -0.6% +34.1% +203.3%
Consumer Staples -3.4% +19.4% +78.0%
Health Care -1.3% +34.5% +103.7%
Financials -0.1% +28.3% +71.1%
Info Tech +1.1% +21.1% +142.2%
Telecom –4.7% +3.1% +37.1%
Utilities –4.6% +6.8% +31.4%
Source: Fidelity.com, as of December 18, 2013.

Certain segments of the health care sector have done even better. Pharmaceutical stocks, as represented by the iShares Dow Jones Pharmaceutical Index (IHE), are up 95% over the same period of time, having added 36% in 2013, thus far. If this momentum is sustained into 2014, health care stocks that may be worth exploring include those in the specialty pharmaceutical, biotechnology, medical devices, and life sciences industries, according to health care sector Portfolio Manager Eddie Yoon.

The momentum players

Trailing close behind health care are consumer discretionary, industrials, and financials. Consumer discretionary and financials were the top sectors in 2012, when they gained 21% and 23%, respectively. Over a five–year period, consumer discretionary stocks have been the gold standard, soaring roughly 203%.

Heading into 2014, consumer discretionary sector portfolio manager Gordon Scott thinks home improvement center stocks, home furnishing producer stocks, and home media stocks may be in a good position to benefit from the ongoing U.S. housing recovery. Financials sector portfolio manager Christopher Lee thinks a potential rise in interest rates would help banks and life insurance companies.

Could tech hit its stride?

The publicly traded tech sector has undergone significant change over the last several years, with a number of widely known technology companies going public. The list includes Facebook (FB), LinkedIn (LNKD), Groupon (GRPN), Pandora (P), Zynga (ZNGA), Yelp (YELP), and, most recently, Twitter (TWTR). These companies are already major players in the sector. On December 11, 2013, it was announced that Facebook will join the S&P 500, just two years after its IPO.

Now that the tech landscape is a little more settled, in the wake of these high-profile IPOs, could 2014 be the year that this sector gets in a groove and potentially exhibits market leadership? Or has the allure of new technology investing opportunities faded? After getting off to a slow start, the tech sector built momentum midyear and should finish in the middle of the pack for 2013, having gained 21.1% as of mid-December.

Technology sector portfolio manager Charlie Chai thinks companies in the mobile instant messaging space present a significant growth opportunity, and that the familiar cloud computing story is still in its nascent stages.

Sector roundup

Consumer staples and energy both had relatively strong years, rising 19 and 17%, respectively. Energy bounced back from a poor 2012 when it was one of the worst performing sectors, having risen under 3%. Materials improved as well, gaining 17% thus far, compared with adding just under 8% last year.

Despite gaining roughly 7% this year, utilities were once again one of the worst performing sectors, a repeat of 2012 when it was the leading laggard, having lost over 2%. The biggest underperformer of 2013 goes to telecom, which rose about 4% as of mid-December.

Even though these sectors do not have as much momentum behind them as some others, there may still be a number of opportunities to explore in 2014.

Learn more

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Investment decisions should be based on an individual's own goals, time horizon, and tolerance for risk.
Because of their narrow focus, investments in one sector tend to be more volatile than investments that diversify across many sectors and companies.
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