A top-down look at the FTSE

How have the FTSE 100’s various sectors performed this year?

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Source: Bloomberg

As the year winds down, it makes sense to take a brief look at the FTSE 100, how the various sectors have fared, and what their valuations look like.

Top of the gainers was the IT sector, up almost 29% for the year, while at the bottom came utilities, left out in the dash for high growth and momentum stocks, with a 17% drop. Overall, only two sectors suffered a fall, with most seeing very healthy returns.

A momentum trader would look to follow these returns by allocating more to IT, industrials, materials and financials. In a bull market, the common rule is to buy the strongest performing assets. Meanwhile, investors may look to reduce their allocations to utilities and healthcare, although the yields on offer in utilities will diminish the losses, and will likely mean that many investors hold on to these, with the added consolation that the utility sector remains cheap on valuation grounds, relative to the others.

Looking at these current price to earnings (P/E) ratios, the IT and financial sectors remain quite expensive. While momentum may carry prices higher, they could be vulnerable to losses if results fail to meet expectations. Consumer staples, materials, real estate and consumer discretionary shares look more fairly valued.

  Return (%) P/E
Information Technology 28.84 45.13
Industrials 17.72 19.94
Materials 16.99 20.89
Financials 12.12 41.78
Consumer Staples 10.65 23.11
Consumer Discretionary 7 19.14
Telecoms Services 5.37 17.16
Real Estate 4.92 20.19
Energy 3.89 27.85
Health Care -4.38 26.46
Utilities -17.39 14.05

 

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