“‘Compared to the overall stock market, cyclicals are in a position similar to where they were at the start of several past major bull-market runs: the early 1960s, early 1980s, early 1990s, and early 2000s,’ he writes in a note. COVID-19 has thrown some of these strategies into confusion, partly because the cycles have become so hard to identify. In May and June 2021, it appeared that the United States was winning the war on the pandemic through vaccinations, and the economy was ready to enter a long recovery phase. Then by August it became clear the Delta variant could be a huge challenge to a complete reopening, and some investors returned to ‘growth’ sectors like technology that initially carried the market in the early days of the pandemic.”

And the market-leading technology companies may have nudged their way into that secular recovery space. Also from that TD piece: 

“‘As the economy shifted to being more services driven, a lot of services are enabled by technology,’” Cruz explained. ‘So, to perform well in an economy directed by the service sector, tech companies with solutions will be in a good spot to help a service-led business.’”

The pandemic is still the wild card of the deck. It’s shaped our behaviours. And perhaps we are changed forever because of it. And our world adjusts, so does our definition of certain sectors and they might not perform in certain economic conditions. It’s not a complete rewrite of sector performance, but it appears that some editing is required. 

More on the evolving sector theme, Goldmans Sachs has released a series of ETFs, including the future consumer, future healthcare, future real estate, future tech leaders, and a future planet ETF that invests in the drive for a greener planet. 

This might all be confusing to many investors, and couch potato investors might suggest the consideration is a complete waste of time. For them, it is. The couch potato portfolios hold all of the sectors and rebalance on schedule. 

Most Canadian self-directed investors, however, build their portfolios around baskets of individual stocks. For those investors, it’s important to have a look at the sector concentration to check if the portfolio has any portfolio. An early-accumulator might approach the sector and asset allocation with a different lens compared to a retiree or a nearly-there retiree. They may require a healthy dose of defensive stocks and funds. 

This sector evaluation may be a consideration for many investors who have a Canadian home bias—and who perhaps exaggerate the sector weightings even further when they pick individual stocks. As we know, Canadian retail investors love their dividend stocks and will be largely overweight in the areas of financials, telecoms, utilities and pipelines. They’re light on cyclicals and growth, and that might create opportunity costs—missing out on potential market gains. 

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