Consumer Defensive Outperforms From Here
By EidoSearch“Career diversification ain’t a bad thing” – Vin Diesel
Since the beginning of the year investors have been concerned about valuations. We have geopolitical strife in Ukraine and now Iraq, both with significant military, energy and economic consequences. The Fed continues to taper and investors are bracing for a rising interest rate environment as early as a year from now, and how has the U.S. stock market faired? We hit all-time highs last week.
The continued theme continues to be, “where else would I put my money”. According to Lipper, weekly fund Equity inflows for the last reported period ending June 11th were $10 Billion, while taxable bond inflows for the same period were only $1.2 Billion. So with more money coming into equities, but ongoing concerns about a pull back, where do conservative investors put their dough?
That’s right. Since February 3rd, the Morningstar Consumer Defensive Index is up over 13%, out-pacing the S&P 500 by over 200 basis points during that time. Using history as our gauge, as we do at EidoSearch given its objective and predictive nature, the first question worth asking is, “when have we seen this environment in Consumer Defensive stocks historically?” The more compelling one is, “when we have seen this environment historically, does the strong performance continue relative to the market and for how long?”
To answer this, we took the last one year price trend and found 26 similar instances of the current price trend in the index’s history. We then looked at how the index had performed 6 months after each of these similar environments. In 20 of the 26, the index was up in the next 6 months, and the average return of all historical instances is 6.7% on an absolute basis and 1.9% on a relative basis to the S&P 500.
Check out the charts below:
One year price chart for the Morningstar Consumer Defensive Index
6 month forward returns for each of the 26 most similar historical instances of the current 1 year price trend in the $MSCD. The two worst performers from this point, historically, were in 2002 and to no surprise 2008.
Replicating the Market Call in EidoSearch (Clients Only)
- Go to New Search tab, select Indices, type in Consumer Defensive and hit View button or Enter
- Select the 1 year tab at the top of the chart, and then hit Search One at the bottom of the chart to just look at this Index’s history
- Click on Return Chart to get the projection above, as well as the table of historical instances and other underlying analytics