Moving from strength to strength

This New York Times' article points out that, although the overall U.S. stock market has little in the way of gains to show for the past 10 years, there have nevertheless been pockets of strength beneath the surface:

Look a bit deeper, though, and you'll find that there have been some changes in the domestic market, too, in the last 10 years - and largely for the better. Some of them, however, are hard to see at first glance.

For example, a majority of sectors have actually posted positive returns since the end of 1999 - in some cases sizable gains. On average, including dividends, energy stocks have returned nearly 150 percent, shares of consumer staples companies (like Procter & Gamble and others that sell necessities) have gained nearly 65 percent and utility stocks have risen nearly 50 percent....

Perhaps the most important change is the one that has occurred in many portfolios. Investors are generally more diversified today than they were a decade ago - and that has helped many households make money in an equity market that has been in neutral over all.

Consider that in 1999, four economically sensitive sectors - technology, financial services, telecommunications and consumer discretionary stocks (which include automakers) - made up nearly two-thirds of the overall market.

Those four areas also happened to be the four worst-performing groups over the last 10 years. Since the end of 1999, tech and telecom shares have lost nearly 8 percent, annualized, according to Standard & Poor's. Financial shares, meanwhile, have fallen almost 3 percent a year, on average, and consumer discretionary stocks are down nearly 2 percent, annualized, S.& P. says.

Today, these four sectors make up less than half of the market.

At the same time, weightings have grown modestly in traditionally defensive areas of the market like health care, consumer staples and utilities. In fact, those three sectors now make up nearly a third of the S.& P. 500-stock index, up from less than 19 percent in 1999.

This helps to illustrate how Upgraders could more than double their money during a period when the market was essential flat - as the pockets of strength rotate, Upgrading automatically begins to rotate into the stock funds that have been quickest to identify the changes underway.
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Austin Pryor is the founder and publisher of the Sound Mind Investing newsletter and website. Visit www.soundmindinvesting.com to learn more.