CHICAGO Jan 13 If the stock market rally
continues, last year's laggards may be this year's winners.
Many of the sectors that could do well are late bloomers in
the five-year bull run. They may not seem like obvious choices,
yet are worthwhile if you're contrarian or slightly defensive.
Assuming economic fundamentals and corporate earnings remain
solid, it could be a decent year for stocks overall and even
better for companies that were neglected in 2013.
"I'm optimistic," said Diane Swonk, chief economist for
Mesirow Financial in Chicago, who predicts three-percent GDP
growth and the creation of up to three million jobs this year.
"I haven't felt bullish in a long time," Swonk said at the
annual economic outlook luncheon of the Executive Club of
Chicago on Jan. 9.
REAL ESTATE REBOUND
A surge in institutional buying came in 2012 among
homebuilding stocks. But last year, Wall Street moved on and
real estate underperformed every sector in the S&P 500 except
for basic materials, rising just 6 percent for the year through
Jan. 10, according to Morningstar.
This year could be different if the economy continues to
create more jobs and spur long-term demand for all kinds of real
estate, from single-family homes to commercial storage units.
The most recent Case-Shiller Home Price index report showed
U.S. home prices posting their strongest annualized gain in
seven years. There's still much pent-up demand for homes and
commercial properties. With mortgage rates expected to remain
relatively low, the real estate sector still has some promise.
Exchange-traded funds that invest in real estate investment
trusts are a worthy consideration, especially if you are looking
for extra yield.
Consider the iShares U.S. Real Estate ETF, which
holds developers and property managers like Simon Property Group
Inc, American Tower Corp and Public Storage
. The fund was up only 1 percent last year, but yields
nearly 4 percent. It charges 0.46 percent for annual expenses.
MATERIALS MAKE SENSE
The materials sector was the most unloved group among the
Standard & Poor's industry sectors last year, gaining less than
3 percent for the year through Jan. 10. A highly-cyclical
basket of metals, chemical, mining and paper stocks, this cadre
tends to do best during mature economic cycles.
But laggards can become leaders if U.S. economic growth -
pegged at more than four percent in the 3rd quarter - continues.
The Materials Select Sector SPDR owns stocks like
Monsanto, Dow Chemical Co and Freeport McMoRan
Copper and Gold. The SPDR charges 0.18 percent for
annual management expenses and outperformed the materials sector
as a whole, gaining 26 percent last year.
Energy was another lackluster sector last year, returning a
modest 10 percent for the year ending Jan. 10, compared to the
best-performing technology group, which gained 56 percent.
Improving demand for energy globally bodes well for companies
that produce oil and natural gas, though.
The Vanguard Energy ETF owns leading producers and
service companies such as ExxonMobil Corp, Chevron Corp
and Schlumberger NV. The fund charges 0.14
percent for annual expenses and returned 26 percent last year.
UTILITIES STILL DEFENSIVE
Companies that produce or distribute power, natural gas and
water seldom light up any investor's radar screen during bull
rallies. These high-dividend companies only become alluring when
investors retreat from the most popular sector of the moment or
there's widespread uncertainty.
Since the bull rally will fizzle at some point, it's always
good to have a fallback. Utilities fit that bill. Although these
companies were firmly in the bottom tier last year, they could
rebound if the market runs into trouble.
Consider an ETF such as the iShares U.S. Utilities,
which holds blue chips such as Duke Energy Corp,
Dominion Resources and Exelon Corp. The fund
returned almost 15 percent last year and yields about 3 percent
with a 0.46 percent annual expense ratio.
Feeling skittish about picking a lackluster U.S. sector and
hoping it rebounds? A wiser choice would be to spread your
portfolio among every sector through a broad-based world stock
fund such as the iShares MSCI ACWI Index ETF, which
holds the biggest stocks from around the world such as Apple
, Nestle SA and General Electric Co.
The fund rose 22 percent last year and charges 0.34 percent for