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Change in Sector/Industry Diversification Report
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A small but potentially very helpful change was recently made to a report on the myiclub.com accounting platform. The change was to the Sector/Industry Diversification report. The report now includes a Super Sectors category. Here is why I am excited about this change.
The concept of Super Sectors is to group sectors of the economy into groups based on their sensitivity to the economic cycle. The report groups all the sectors into 3 Super Sectors based on their sensitivity to the economic cycle. The 3 Super Sectors are the Defensive, Sensitive and Cyclic Super Sectors. By adding this category it becomes much easier to diversify a portfolio to weather downturns. In a recent club operations webinar Doug Gerlach suggested a minimum of 15% in each Super Sector. By spreading your risk throughout the economic cycle you should have a more stable portfolio return as some stocks will be performing better no matter which part of the cycle the economy is in.
Individual sectors within a Super Sector will have a higher degree of correlation to each other and less correlation to sectors within the other Super Sectors. Having this information easily at hand makes it easier to select companies that have little correlation to each other and respond differently to the economic cycle. This information has already made it easier for me. An analysis of personal and club portfolios suggested both were a little short on the Defensive Super Sector. I have been able to narrow my focus to companies in this Super Sector.
Below are the individual sectors in each Super Sector.
Defensive Super Sector:
◦ Healthcare
◦ Consumer Defensive
◦ Utilities
Sensitive Super Sector:
◦ Communication Services
◦ Energy
◦ Industrials
◦ Technology
Cyclical Super Sector:
◦ Basic Materials
◦ Consumer Cyclical
◦ Financial Services
◦ Real Estate
If you would like to learn more about this concept the Investment Club Operations webinar on this topic will be posted to the ICLUBcentral web site - https://www.iclub.com/webinars/webinar_iclub.asp. This page has an archive of club operation webinars. The Super Sector webinar was not yet posted when this was posted. When posted this webinar will be the September 19, 2017 webinar.
Russell Malley
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