Gavekal Capital: North American Growth Counter-Cyclicals Still Equity Leadership

Wednesday, February 18, 2015

North American Growth Counter-Cyclicals Still Equity Leadership

We divide stocks in all ten economic sectors into four basic, equal weighted baskets:
1) Early Cyclicals: These are consumer discretionary companies.
2) Hyper Cyclicals: These are financial and technology companies.
3) Late Cyclicals: These are energy, material and industrial companies.
4) Counter-Cyclicals: These are telecom, utility, consumer staple and health care companies.

Beyond that, we sub-divide the counter-cyclical basket in a group of growth counter-cyclicals represented by the consumer staple and health care companies.  These counter-cyclicals have been the leadership group for the last five years.

Over the last month:
1) Late cyclicals in North America have outperformed the MSCI North America Index by around 2%, while they have outperformed the MSCI World Index by about 2.5%.  Yet, these stocks have been among the worst performers compared to the MSCI World Index over the last 5 years.
2) North American growth counter-cyclicals broke out to new all-time highs relative to both the MSCI North America and MSCI World Index.  These stocks have outperformed all cyclicals by about 30% since the beginning of 2011 and continue to trace out higher highs and higher lows.
3) North American early cyclicals have yet to eclipse their 2013 highs relative to the MSCI North America Index, but they are at new highs relative to the MSCI World Index.
4) North America hyper cyclicals are still locked in a long-term trading range relative to the MSCI North America but are in a 4 year period of relative outperformance compared to the MSCI World Index.

On balance it would appear there has not been any sort of leadership change among companies in North America.  Charts are available for download here: MSCI North America Baskets.