Canadian investors are now well aware of the worst performing market sectors, but they may be missing the new market leadership by focusing on the energy-related carnage.
The chart below depicts the six-month percentage return for all of the major market sectors on both sides of the border.
The three top performing sub-indexes are all from the S&P/TSX – consumer staples, health care and information technology. In each case, however, the indexes are all driven by single stocks. Alimentation Couche-Tard Inc., benefiting from U.S. dollar revenues that make up 80 per cent of its total, dragged the S&P/TSX Consumer Staples Index higher by 24 per cent. The Valeant Pharmaceutical International Inc.-dominated TSX Health care index is next, rising 22 per cent, and BlackBerry Inc. is responsible for the technology index's 18 per cent rise.
The S&P 500 Food and Staples Retail Index was the top performing U.S. sector. In this case, credit for the outperformance is shared by four companies; Kroger Co., CVS Health Corp., Costo and, to a lesser extent, Whole Foods Market Inc.
The S&P 500 Pharma Biotech and Life Sciences and the S&P 500 health care equipment and services are next and here is where I think the most promising investment opportunities lie. Strength in these sectors has been broad based, as the effects of developed markets' changing demographics (and U.S. health insurance policy) evolve from projections into tangible, profitable facts.
The positive outlook for health care sectors has been reflected in a surge in merger and acquisition activity, highlighted by the Medtronic Inc.'s $43-billion (U.S.) acquisition of Covidien PLC. A survey by accounting firm KPMG suggests the heightened deal activity levels will continue: "One third [of respondents] said pharmaceuticals/biotechnology will be the most active industry for mergers and acquisitions in 2015… in addition, 27 per cent saw health care providers as being ripe for consolidation."
Canadian investors don't need to have an opinion on the end-of-the-commodity-supercycle question to recognize the advantages of geographic and sector diversification. Instead of waiting for the best market themes of the last decade to recover, investors should add stocks from what appear to be the new leading industries.
Follow Scott Barlow on Twitter @SBarlow_ROB.