Fisher Investments on Industrials

9

ALLOCATING YOUR “CAPITAL GOOD”

 

 

In this chapter, we’ll discuss various Industrials investment strategies, including examples of how to invest throughout a market cycle. We’ll also briefly cover investing based on the strength of the ultimate end market. These strategies include:

• Adding value at the industry level

• Adding value at the security level

• Adding value in an Industrials sector downturn

While the strategies presented here are by no means comprehensive, they’ll provide a good starting point for constructing a portfolio that can increase your likelihood of outperforming an Industrials benchmark. They should also help spur some investment strategy ideas of your own. After all, using this framework to discover information few others have discovered yet is what investing is all about.

STRATEGY 1: ADDING VALUE AT THE INDUSTRY LEVEL

The first strategy is overweighting and underweighting Industrials industries based on your market outlook and analysis (i.e., the top-down method). Within the Industrials sector, each industry falls in and out of favor frequently—no one area outperforms consistently over the long term. Each will lead or lag depending on the market dynamics, including global and/or regional growth, end market strength, a favorable interest rate environment, and regulatory conditions.

A look at the performance of the S&P 500 Industrials industries since 1995—when the indexes first began—split into two tables (Table 9.1 and Table 9.2) because of the number of ...