There are many ways to analyze the US Equity Market. “Industry Sectors” is one of the most popular methods of analysis. It is the norm today to review 10 major sector indexes (SPDR ETFs family) at least once per week. The ETF industry offers another set of 20-30 more or less liquid “sub-industry” funds (Level II and Level III per GICS¹ classification), which help investors with a more granular level of industry analysis.
Perhaps not many people know that the GICS industry classification system offers many more “sub-industry” categories/ groupings across four distinct levels (Level I – IV).
At QAS, we analyze all instruments that are relevant to our clients. Among the most popular weekly reports in our database is a set of “US Sector Level II” reports capturing 68 Level II Sector groups (per GICS classification), which we transform into our own geometric-average indexes.
There are periods of time during which stock market analysis becomes very complicated. The recent market sell-off pushed all major sectors to lower levels, without exception. Analysts are now trying to model various scenarios and figure out what market segments will continue to move higher and which ones are likely to decline further, and therefore – it may be time to reshuffle their portfolios.
This is when zooming into more granular industry levels makes sense and helps in evaluating new investment opportunities while re-thinking current positions from a risk-management perspective.
One interesting point we need to keep in mind: most sector indexes are market-cap weighted, and therefore assign higher weightings to stocks with higher market capitalization. Logically, there is a chance that certain smaller sub-industries can be overlooked, although they may present real investment opportunity.
Our 68 Level II Sector geometric-average indexes focus on pure price action rather than market capitalization, and therefore, we believe that our clients are better equipped to unlock these hidden investment opportunities.
As of February 21, 2018, we have noticed significant rotation between industry groups that is not clearly seen in the major sector instruments.
Among our best bets (according to QAS rating system) are the following:
Aerospace & Defense
Internet & Catalog Retail
Please feel free to request additional information about our Sector Level II research and licensing programs for asset management firms, as well as managed account programs offered through our business partners – investment management firms around the world.