Here is an interesting interview BusinessInsider did with Denise Chisholm on using defensive and cyclical sectors to outperform the market.
How to Use Defensive Sector Rotation in Your Portfolio.
Her most interesting point was that dividing sectors into ‘defensive’ and ‘cyclical’ can be more useful and predictive than thinking of stocks in terms of ‘growth’ and ‘value’.
She considers defensive sectors to include: consumer staples, healthcare, utilities, and telecom.
Cyclical sectors would include: technology, financial, industrials, and consumer discretionary.
Chisholm claims that her research shows that an equally weighted portfolio of those defensive sectors have an 80% chance of outperforming the broader market during bear markets.
Another point in the video is that we had an earnings recession in 2015-2016 even though we didn’t technically have a recession. An earnings recession is just a period of time where company profits decline on a year over year basis. This is an important thing to note because business investment cycles tend to coincide with business profit cycles. That means that if we just came out of a corporate earnings recession at the end of 2016 then we may be in the early stages of the business investment cycle and the current economic expansion has a lot more room to run; we may not be ‘late cycle’ as many economists seem to think.