Consumer Goods Win 2016, Healthcare Loses

Posted by jbrumley on December 30, 2016 4:05 PM

The final tallies for each major sector are in, and surprise! The iShares US Energy Fund (IYE), in dark green, outperformed everything else with a 26% gain. Meanwhile, iShares US Healthcare Fund (IYH) -- plotted in a turquoise color -- was the worst performer, logging a 1% loss in calendar 2016. The former was an impressive end to on otherwise so-so year, and the latter was a matter of making a bad problem worse as the year came to a close. That is to say, healthcare was never a great performer in 2016, but turned particularly disappointing during the last quarter of the year.

The iShares US Industrials Fund (IYJ), plotted in a pale pink, was a strong runner-up, gaining 24.4% for the year. The iShares US Consumer Goods ETF (IYK) -- a lime green line -- didn't fare much better than healthcare stocks did, up only 5.7% in 2016.

The S&P 500 ended the year up 13.7%. Most sector ETFs logged better gains, but the sectors that underperformed did so to a significant degree.

The disparity between the best performers and the worst performers for the recently completed year is narrower than usual; the best/worst range is usually between 30% and 40%. Moreover, the spacing within the range is usually wider. In 2016, most of the sector ETFs reported returns of between 15.4% and 25.8%... unusually similar results for any twelve-month span. Those mostly-converged returns make it difficult to determine which names are positioned to lead or lag in 2017.

Though not an absolute rule, most sectors that lead in one year and lag the next, and those that lag tend to lead the following year. That bodes well for healthcare in 2017, and poorly for energy stocks. In this particular instance though, the iShares US Energy ETF is still so beaten down from a dismal 2015 that there may be plenty more room to rise the coming year (in step with the upside potential of crude oil itself). Click on the image to view the full-screen version. The ETF color code is in the top right corner of the image.


Zooming into just the past few days, notice that the iShares US Utilities Fund (IDU), plotted in royal blue, hasn't been pushed lower like most other sectors. In fact, it's continued to climb higher. This strength -- which is only discernible with this kind of relative performance look -- is a hint that these stocks are gaining ground while investors flee other sectors. This trend may be worth trading, even though few have even noticed the quiet difference between it and all other sectors.

Whatever the case, there are no strong "must-have" or "must-sell" sectors headed into 2017, though the beaten-down healthcare sector would be an interesting place to start a value-oriented hunt. Conversely, industrial stocks may be facing more downside than upside in the foreseeable future after such a tremendous run in 2016.