Many investment experts are telling retail investors to consider industrials.
The category, which goes by investor shorthand ‘industrials’, includes aircraft manufacturers, railroad companies, trucking operations and heavy equipment makers. When economies are in a downturn, their sales lag and their stocks do, too — but their shares outperform the market when economies are booming.
The world’s gross domestic product — the monetary value of all the goods and services that countries produce — is expected to expand by about 3.6% in 2014. That is the biggest gain since 2010 and many investment experts are telling retail investors that now might be a good time to jump into the industrial sector.
There are several reasons why the industrial sector outperforms in improving markets, but the main driver comes down to basic economics. When companies that need industrial products are doing well, they’re more willing to spend money on equipment. That translates into sales and profits for industrials.
Investors have already missed out on some strong gains, as global industrials are up 22% year-to-date, according to MSCI. It’s highly possible that the sector won’t match those returns next year, but Russ Koesterich, BlackRock’s San Francisco-based chief investment strategist still thinks the industry will outperform the broader market.
The category, which goes by investor shorthand ‘industrials’, includes aircraft manufacturers, railroad companies, trucking operations and heavy equipment makers. When economies are in a downturn, their sales lag and their stocks do, too — but their shares outperform the market when economies are booming.
The world’s gross domestic product — the monetary value of all the goods and services that countries produce — is expected to expand by about 3.6% in 2014. That is the biggest gain since 2010 and many investment experts are telling retail investors that now might be a good time to jump into the industrial sector.
There are several reasons why the industrial sector outperforms in improving markets, but the main driver comes down to basic economics. When companies that need industrial products are doing well, they’re more willing to spend money on equipment. That translates into sales and profits for industrials.
Investors have already missed out on some strong gains, as global industrials are up 22% year-to-date, according to MSCI. It’s highly possible that the sector won’t match those returns next year, but Russ Koesterich, BlackRock’s San Francisco-based chief investment strategist still thinks the industry will outperform the broader market.
Consider looking at companies in Europe and Japan, said Koesterich. The European market, in general, is cheaper than the US. And Japan’s economy is accelerating again after several years of little growth.
While Beesley director of global equities at Henderson Global Investors,said he also thinks European-based industrials offer good value, he focuses more where companies sell their products, rather than where they are headquartered. With emerging market growth slowing, he is partial to companies that sell into North America, Europe and Japan.
Swedish truck manufacturer AB Volvo is a good example, he said. It is based in Sweden, but most of its business is being done in the US, Latin America and other parts of Europe.
“That spread of revenues is important,” he said.
Source: BBC
