Today's stock market is a bargain hunter's graveyard. Beaten down stocks can be found easily enough. But if you're an investor in exchange traded funds looking to buy individual sectors on the cheap, you're cooked.
The worst-performing sector of the S&P/TSX composite index in the 12 months to late August was materials. You know the story - a weak global economy has depressed demand for the metals that companies in this sector produce, while gold prices have been weak. Poor materials. Up just 7.6 per cent in the past year, making it by far the lamest of the 10 TSX sectors.
Next worst, if that's the word, is utilities. These stocks were hammered last summer as bond yields shot up, and then they recovered when bond yields pulled back. This rough ride has left the sector with a 12-month gain of only 12.5 per cent. Next on the list of TSX's lamest is telecom services, up 12.9 per cent. Now, let's jump to the best performing sectors of the past 12 months. Industrials surged 41.6 per cent, financials 26.6 per cent, and energy 25.7 per cent.
Within any of these sectors, there are individual stocks that have had a rough time of it lately. The biggest 12-month decliner in the industrials sector was Westport Innovations, down 43.8 per cent. Bombardier Inc. was down 16.6 per cent. More than offsetting stocks like this were Air Canada, up 222.4 per cent, and Canadian Pacific Railway, up 76.7 per cent. It's the same story in the other sectors: The good outweighs the bad.
These numbers offer some insight into the state of the Canadian stock market as a whole, and it's kind of sobering for anyone looking to invest new money into index-tracking ETFs.
You basically have three choices - suck it up and buy at today's elevated levels, sit back and wait for a correction or buy gradually, say, monthly or quarterly.
Investors who sit in cash waiting for a big decline often can't pull the trigger when the event happens. They're too worried about the market falling further. That's why the gradual approach rules right now in this bargain hunter's graveyard of a market.
Rob Carrick