The Guardian Sector model is an active strategy investing into U.S. equity sectors based upon a blend of cyclical trends, relative strength and valuation. The goal is to gain alpha for portfolios by capitalizing on the differing phases of the economic cycle.

What are Sectors?

All major public companies belong to one of 11 sectors based upon a classification system developed by MSCI and Standard & Poor’s. Companies within the same sector tend to have higher correlations in their price performance and rate of revenue and earnings growth than companies from different sectors. The unique characteristics of each sector and their tendencies to perform in a different way at various points in the economic cycle offer an excellent means to capitalize on the business cycle.

Sector Cycles

The following chart displays the varying performance of the 11 sectors within the S&P 500 Index over the last 13 years:

The chart above shows the historical annual total return performance, including reinvestment of all capital gains and dividends, of the 11 sectors represented within the S&P 500 Index. It is meant to show changes in market trends across the different S&P 500 sectors over the 13-year period, 2007-2019. You cannot invest directly in an index, as the returns do not include fees and expenses. Past performance is no indication of future returns and you can lose money by investing into equity sectors. Data provided by Novelinvestor.com.

Description of Sectors

StaplesConsumer Staples – The companies in this sector are primarily involved in the development and production of consumer products people use on a daily basis. This includes food and drug retailing, beverages, food products, tobacco, household products, and personal products. Industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing are primarily represented in this group.

Companies such as Wal-Mart, Proctor & Gamble, Philip Morris International, and Coca-Cola are classified as consumer staples stocks.

Consumer staples stocks tend to perform best relative to other sectors in the late expansion phase of of the economic cycle and poorest during the middle expansion phase.

DiscretionaryConsumer Discretionary – Industries such as automobiles and components, consumer durables, apparel, hotels, restaurants, leisure, media, and retailing are primarily represented in this group. These companies produce products that people want but don’t necessarily need.

Companies such as McDonald’s, Walt Disney Co., and Comcast are considered consumer discretionary stocks.

Discretionary equities tend to perform best in the early and middle expansion phase of the business cycle and poorest during the late expansion and early recession phase.

EnergyEnergy – Companies in this index primarily develop and produce crude oil and natural gas, and provide drilling and other energy-related services.

Companies in this category include companies such as ExxonMobil Corp., Chevron Corp, and ConocoPhillips.

Energy stocks tend to perform best during the middle to late expansion phase of the economic cycle and under-perform during the early and late recession phase.