Investment Lessons from My Final Sector Scorecard of 2017

The best-performing, highest-rated ETFs. The best-performing, highest-rated stocks. The best-performing fixed-income investments. I’ve spent a lot of time recently looking back at which trends and trades could’ve made you money in 2017. The reason is simple: I believe that process helps identify which investments could spin off even more profits in 2018!

Now, it’s time for my final “Sector Scorecard” of 2017 – a look at which of the S&P 500’s major sectors led the market, and which lagged it, this year. The table below comes from my S&P Sector Winners and Losers in 2017 Screener, which tracks all the major sector ETFs and the industries they focus on. It also includes data on dividend yields, Weiss Ratings, and year-to-date total returns.

Data Date: 12/26/2017

The clear winner was the Technology Select Sector SPDR Fund (XLK, Rated “B+”). It sported a YTD gain of more than 35% as of earlier this week, compared with a return of around 22% for the SPDR S&P 500 ETF (SPY, Rated “B”).

Second and third place belonged to the Materials Select Sector SPDR Fund (XLB, Rated “B-”) and the Industrial Select Sector SPDR Fund (XLI, Rated “B”), with gains of 23.7% and 23.5% respectively. Three other sector ETFs focused on consumer discretionary, financial, and health care stocks also all managed to eclipse the SPY’s performance, albeit by narrow margins.

The only sector ETF to post an outright loss was the Energy Select Sector SPDR Fund (XLE, Rated “C”) with a drop of 1.2%. But ETFs focused on real estate, utilities, and consumer staples all badly lagged the SPY, with gains of only 9% to 12.9% on the year.

What’s the message coming from this sector scorecard? With the economy strong and animal spirits on the loose, “playing defense” just didn’t work in 2017. More conservative, defensive sectors like consumer staples lagged, while more aggressive, “growthier” groups like tech and industrials led the charge.

That’s no surprise to me, of course. I urged you to focus on offensively oriented sectors in multiple columns over the past year, including here, here, here, and here (Here too). That strategy was richly rewarded.

But will it pay off again in 2018? Like the Magic 8-Ball phrase goes, “Signs point to yes!” Our proprietary economic and market indicators remain firmly in positive territory, while the powerful “Trump Quake” forces I first highlighted for you more than a year ago are still supportive of growthier stocks and sectors.

Then there’s the $1.5 trillion tax cut package that the president just signed into law. Sure, it has its flaws. But it should bolster corporate profits, boost the take-home pay of many Americans, and increase the attractiveness of U.S. markets to foreign investors. Those are all positive factors for growth-oriented sectors and the ETFs that invest in them.

Bottom line: Unless and until our proprietary, empirical data here at Weiss Ratings shows it’s time to worry and get defensive, my advice is … don’t! Stick with the trends that have been working, and should continue to do so.

Finally, I hope you have a wonderful New Year’s holiday. I’m looking forward to helping you and your portfolio hit the ground running in 2018!

Until next time,

Mike