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Chief Market Strategist
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  2 Natural Resource Sectors Have Kept Pace With 2 Defensive Sectors Since 3/24/00
Posted Under: Conceptual Investing
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View from the Observation Deck 

  1. Today's blog post is an update of one we did in November 2013. That post discussed how buy-and-hold equity investors could potentially mitigate market risk over time and capture upside by pairing two defensive sectors. 
  2. The two defensive sectors featured were Consumer Staples and Health Care. (Click here to view previous post from 11/5/13) As indicated in today's chart, these sectors have performed relatively well since 3/24/00.
  3. What makes this particular time period (3/24/00-7/25/14) intriguing to us is that it begins with the S&P 500 hitting an all-time high during the Internet Revolution. The period that followed was called "The Lost Decade."
  4. From 3/24/00-7/25/14, equity investors endured two punishing bear markets (3/24/00-10/9/02 & 10/9/07-3/9/09) and numerous headwinds, such as the sovereign debt crisis in Europe.
  5. While we know that defensive sectors have a history of weathering tough markets better than their cyclical counterparts, the energy and materials sectors have shined as well, on a relative basis, since 3/24/00.
  6. Year-to-date through 7/25, both Energy (+13.07%) and Materials (+9.72%) ranked in the top five sectors, on a total return basis. The outlook for both is encouraging, in our opinion.
  7. Bloomberg's 2014 and 2015 earnings growth rate estimates for the S&P 500 Energy Index were 9.99% and 8.11%, respectively, as of 7/28, compared to 9.31% and 11.17%, respectively, for the S&P 500.
  8. Bloomberg's 2014 and 2015 earnings growth rate estimates for the S&P 500 Materials Index were 6.77% and 19.92%, respectively, as of 7/28.
  9. The longer-term prospects for stronger global GDP growth suggests that a 50/50 split between a portfolio of energy stocks and a portfolio of materials stocks is worth consideration, in our opinion.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions and other expenses incurred when investing. Investors cannot invest directly in an index. There can be no assurance that any of the projections cited will occur. The S&P 500 is a capitalization-weighted index comprised of 500 stocks used to measure large-cap U.S. stock market performance, while the S&P Sector Indices are capitalization-weighted and comprised of S&P 500 constituents representing a specific sector.

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Posted on Tuesday, July 29, 2014 @ 3:04 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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