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Introduction
In this issue...

“Hot” sectors revisited: Avoiding those that are overvalued

By Elmer L. (Al) Meszaros, CFA, Partner

In this newsletter last fall, I described the risk of investing in various “hot” and overpriced sectors of the stock market, something our firm takes great care to avoid because of the potentially disastrous results that could result.

Last September, the “hot” sectors were residential housing, real estate investment trusts, energy, and utility stocks.

The chart (at right) indicates how those sectors performed in the past 12 months compared to the Standard & Poor’s 500 Index, widely regarded as the best single gauge of the U.S. equities market. Only REIT’s (Real Estate Investment Trusts) performed better than the S&P 500 Index.

Energy sectors of the market are still currently “over-owned” and dependent on the price of oil, meaning that further declines are possible and thus are sectors we continue to avoid. Conversely, healthcare and technology sectors of the market are “under-owned” and present good value. Carefully selected stocks within these two sectors may offer long-term opportunity for investors.