What’s the investment landscape going to look like in 2016? More of the same, but in less obvious places.
Terry Sandven, chief equity strategist with U.S. Bank Wealth Management in Minneapolis, says fundamentals remain favorable for select companies within many key sectors, especially the technology, health care, industrial and consumer categories. Energy and transportation are iffy and likely to remain so until the second half of 2016, Sandven says.
The likelihood of rising interest rates signals strengthening optimism about the U.S. economy as seen through the lens of the Federal Reserve, though most sectors will see a few standouts that will likely propel overall sector performance. “Not all companies within each sector are positioned alike,” Sandven says. “Equities are entering 2016 with valuations elevated, inflation restrained, interest rates low and sentiment generally positive.”
He’s looking for companies within each sector with thematic appeal, such as companies that cater to a global consumer, e-commerce and an aging global population.
Broad-brush investment strategies that don’t discriminate within sectors — such as index funds — are perhaps not as likely to make the most of each category’s standouts, says Sandven. That’s why he’s a proponent of actively managed funds for the time being. Sandven expects the Standard & Poor’s 500 index will hit 2,275 in 2016.
Investment professionals expect these four sectors to carry momentum into 2016:
Technology. Mobile and ” Internet of Things” plays will drive wins here, Sandven says. E-commerce, cloud computing and any-time-any-place connectivity will translate to services and infrastructure that businesses and consumers buy consistently. He likes “all those areas that tend to leverage technology in how we live, work and play.”
Some of the biggest names here are Alphabet (GOOG, GOOGL), with its self-driving cars and Nexus; Verizon Communications (VZ) and AT&T (T) for their expertise in connecting the world to the Internet; and Apple (AAPL) and International Business Machines Corp. (IBM), which have a partnership that allows IBM’s big data and analytics to be accessible on Apple’s iOS devices.
Health care. Health care is a “sector for all seasons,” says Sandven, because it blends defensive and growth corporate strategies. Innovations in oncology, immunology and other treatments are poised to drive long-term performance globally. Despite some short-term volatility that probably will erupt as drug pricing settles out, “we like the longer-term profile of this sector, especially that it caters to an aging population,” Sandven says.
Western health care companies are just discovering expansion opportunities in Asia, says Andrew Stotz, an equities analyst for two decades who now heads A. Stotz Investment Research in Thailand. While many U.S. hospitals count on celebrity doctors and their referrals to drive growth, it’s administrators who hold the power and drive growth in Asian systems.
As U.S. pharma, medical device and supply companies sync with the Asian model, sales are likely to accelerate. “These health care systems are run so much more efficiently that investors will get much more,” Stotz says. “Asset utilization is massive.”
Housing and real estate. Housing is stable, wages are improving and interest rates are low. Consumers can borrow again — and that could be good news for mortgage lenders, even if the Fed orders an increase in interest rates, as expected.
Real estate investment trusts are well-positioned for 2016, says Stotz, considering that millennials are largely ownership-adverse. “We have the metrics now to prove that individual houses are not great investments, and millennials want mobility,” he says.
Real estate investment trusts and the property management infrastructure are accelerating their investment in automated tracking, diagnostic and management systems. New buildings can deliver renters rich lifestyle amenities and personal service with less overhead cost than ever, sending substantial returns to investors, Stotz says.
Andrew Melnick, chief investment strategist at BPV Capital Management, notes that real estate investments in tech capitals are doing especially well. While some millennials are edging into homeownership, those in the service and civil service sectors — teachers, police officers, government workers and hospitality and health care employees — need affordable housing in notoriously expensive locales. Rental communities with smaller units and amenities scaled accordingly deliver good returns because they are nearly always full, he says.
Consumer. The consumer sector areas that are thriving support experiences, says Melnick, as opposed to basic goods. That’s why several analysts say athletic gear and clothes will outperform basics and fashion clothing.
Melnick also likes categories that support baby boomers who insist that 70 is the new 50. Cruises, soft adventure tour companies, airlines, athletic clubs, related services such as physical therapy, and health care systems that innovate new modes of wellness will win sustained support, he says. The best performers, according to Melnick: “Athletic equipment that adjusts with boomers’ needs.”
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4 Stock Sectors to Watch in 2016 originally appeared on usnews.com
