Skip to main content

Pick stocks across sectors for best yield

Some strategies to help you diversify your portfolio across different sectors


   To achieve ample diversification , investors invest across different sectors and market capitalisations. A buoyant market doesn't mean that all sectors fare well. Similarly, a falling market doesn't imply that all sectors under-perform. Stocks of some sectors remain steady even in adverse market conditions and recover fast when the sentiment improves. The real challenge is to evaluate and identify sectors that can withstand market turbulence and yield good returns.


   There are many sectors including consumer goods, healthcare, financial services, telecommunications, information technology, energy, business services, auto, infrastructure and construction. Sectors whose performances are in tune with the overall economic growth and have a longterm earnings potential make good equity investments.


   Investors who are unsure of evaluating different sectors can employ the 'equal weight sector' strategy to make investment choices.

Equal weight sector strategy    

The basic premise behind the equal weight sector strategy is that all sectors do not outshine year after year. While some sectors may fare well this year, the remaining could out-perform next year.


   Invest in each major sector represented in the market index in equal proportions. Your portfolio is equally exposed to all major sectors through their various phases of peaks and troughs. Periodically rebalancing the sectors allows you to tap profits from outperforming sectors and reinvesting in under-performing sectors that are expected to rebound.


   This strategy helps you beat market volatility. However, track your trading expenses that could eat into your portfolio's returns.

Cyclical sectors    

When the economy progresses across various phases of slow down, recovery and growth, some investors dynamically alter their investment strategies. The potential of various sectors changes with inflationary forces, liquidity, currency value, global influences, government policies and demand-supply situation.


   The performance of cyclical sectors is sensitive to economic cycles. These sectors follow their own upward or downward trends during a given phase of the cycle. Technology, capital goods, financial, communication and infrastructure are some cyclical sectors.

Defensive sectors    

Consumer necessities, healthcare and utilities are classified under defensive sectors and are less vulnerable to fluctuations in economic cycles. Hence, these sectors offer the much-needed stability to your portfolio, especially in volatile patches. You can pick good stocks by comparing their earnings with their peers across the same sector. Further, diversifying across sectors minimises the chances of losing your entire investment in case the sector you are heavily invested in fumbles.

Correlation of sectors    

Some sectors exhibit high correlation in performance under similar economic conditions. Investors may not achieve the desired diversification if they invest across sectors that have high correlation. The future of a sector is marked by its growth in the domestic market, ability to capture global market share, innovations, job creation potential, embracing new technology and availability of raw material.


   A portfolio heavily invested in sectors with high correlation would be marked with extreme volatility.

 

Popular posts from this blog

Real Returns in Investing

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300 Real Returns in Investing     A Anil Singh (name changed), 44, works with a private company and believes in investing his entire savings in fixed deposits. His financials from the year 2000 till date is given in the table. Anil's savings in FDs gave him an average return of around 8%. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 49.80 lakh. The value of his investment today is around Rs 66.71 lakh. Naveen Singh (name changed), 44, works in a similar profile like Anil. However his expenses were on the higher side. His financials are as in the table. Naveen invested only in equities. The total amount saved over the 174 months (From January 2000 to June 2014) is Rs 38.40 lakh. The v...

Budget 2014 Highlights for Saving

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   The new finance minister Arun Jaitley has just presented his first budget. What measures does the budget contain that will specifically impact savers and investors? Here they are: 1. Housing loans exemption for self-occupied properties increased to Rs2 lakh: Earlier this amount was Rs1.5 lakhs. This move barely keeps pace with the inflation in asset values.   2. Investment limit under 80 (C) increased to Rs1.5 lakh: This is a good move again and offers some relief to taxpayers.   3. IT exemption increased to Rs2.5 lakh, Rs3 lakh for senior citizens. This comes as a minor relief for taxpayers.   4. Annual PPF ceiling to be enhanced to Rs1.5 lakh, from Rs1 lakh: This is in tune with the change in 80C.   5. Long term capital gains tax for debt funds has been rai...

ICICI Prudential MIP 25 - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   ICICI Prudential MIP 25     (CRISIL Rank 2)   This scheme was launched March 2004. Please see the chart below for the one, two, three and five years annualized returns from this scheme. The minimum investment in the scheme is Rs 5,000. The asset allocation of the portfolio is 24% equity, 72% debt and 4% cash equivalent and others. Please see the chart below for the monthly dividends declared by the scheme, on a per unit basis, over the last 5 years.   For further information contact Prajna Capital on 94 8300 8300 by leaving a missed call Leave a missed Call on 94 8300 8300 Leave your comment with mai...

Franklin India Smaller Companies Fund - Invest Online

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   Franklin India Smaller Companies Fund   While the universe of small-cap stocks in India is vast, there are very few equity funds which take on the task of sifting through this space for good long-term bets. Franklin India Smaller Companies Fund has managed this with aplomb. What we like about this fund is its significant out-performance of its category and benchmark over the last four years, and its ability to moderate portfolio risk despite investing in the riskiest segment of the equity market. This fund's stock selection strategy, like that of Franklin India Prima Fund is focused on finding companies that generate positive cash flows across business cycles. High return on investment and manageable leverage are also filtering criteria. Says R. Janakiraman, fund ma...

How to open a Capital Gains Account?

Download Tax Saving Mutual Fund Application Forms Invest In Tax Saving Mutual Funds Online Buy Gold Mutual Funds Leave a missed Call on 94 8300 8300   How to open a Capital Gains Account? You can open a capital gains account in an authorized bank. The Government has notified 28 banks which can open the Capital Gains Account on behalf of the Government. You have to apply for opening the account by filling out the required application form (Form A) and submit proof of address, PAN card and photograph. You cannot withdraw funds from a capital gains account using a cheque book or ATM, like you do in your normal savings bank account. There are procedures to be followed to withdraw funds from the capital gains account. Investment in Specified Bonds Section 54EC of Income Act provide that if the seller invests whole or part of capital gains arising from the sale of asset in specified Capital Gains, within a period of six months of the ...
Related Posts Plugin for WordPress, Blogger...
Invest in Tax Saving Mutual Funds Download Any Applications
Transact Mutual Funds Online Invest Online
Buy Gold Mutual Funds Invest Now