Gavekal Capital: Pop Quiz: What Is The Best Performing Regional Sector YTD?

Thursday, March 12, 2015

Pop Quiz: What Is The Best Performing Regional Sector YTD?

The recent focus of the financial world (including for us) has been on the massive currency moves going on in the forex markets. By this point, everyone and their grandma knows that the US dollar has been on an explosive move higher. Since we are in a stronger US dollar environment now that must mean the US stock market has been outperforming in US dollar terms, correct? Not so fast. 

In the table below, we show the equal-weighted, US dollar based returns of the ten MSCI sectors across the Pacific, European, and North American regions. Somewhat astonishingly given that the nominal trade-weighted dollar is up about 8% year-to-date, the top three performing sectors are all from the MSCI Pacific Index. MSCI Pacific health care is up an impressive 15% YTD, while the MSCI Pacific materials sectors is the only other sector up over 10% in USD terms. Out of the top 11 best performing sectors, only 1 (consumer discretionary) comes from North America.  And if we shift our focus to the worst performing sectors this year, six out of the ten worst performing sectors come from North America. MSCI North America utilities is by far the worst performing sector as they have fallen by 5.5% year-to-date.

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With MSCI Pacific's outperformance this year, we aren't surprised to see that our Gavekal Knowledge Leaders Developed Market World Index (KNLG) is outperforming the MSCI World INdex. KNLG has managed to return 3.53% so far this year compared to the MSCI World Index's return of only 7 basis points. KNLG is uniquely positioned as it has a structural tilt towards Japan and a structural tilt away from the United States relative to the MSCI World Index. Our KNLG index also structurally favors consumer discretionary, information technology and industrial firms while structurally underweights financials and energy. 

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For more information on both of our Knowledge Leader Indexes please click here.