MATERIALIZE YOUR PORTFOLIO Investing Strategies
In this chapter, we’ll discuss various Materials investment strategies, including examples of how to invest throughout a market cycle. We’ll also briefly cover investing directly in underlying commodities. The strategies include:
• Adding value at the industry and sub-industry level
• Adding value at the security level
• Adding value in a Materials sector downturn
• Investing in commodities
While the strategies presented here are by no means comprehensive, they provide a good starting point for constructing a portfolio that can increase your likelihood of outperforming a Materials benchmark. They should also help spur some investment strategy ideas of your own. After all, using this framework to discover information few others have yet to discover is what investing is all about.
STRATEGY 1: ADDING VALUE AT THE INDUSTRY AND SUB-INDUSTRY LEVEL
The first strategy is overweighting and underweighting Materials industries or sub-industries based on your market outlook and analysis (e.g., the top-down method). Within the Materials sector, each industry and sub-industry falls in and out of favor frequently—no one area outperforms consistently over the long term. Each will lead or lag depending on drivers like the direction of raw material prices, production costs, the regulatory environment, and global or regional growth in end markets.
A look at the performance of the MSCI All Country World Materials industries from 1995 to 2007 (Table ...