With a wide range of sectors and companies to choose from, investors can often feel overwhelmed with options. Deciding which sector to choose, never mind which companies within a given sectors to select, is a daunting and time-consuming task. I find that following a regimented approach to stocks involving choosing which sectors to invest in first, followed by a group of large-cap stocks fitting the growth and income profile of the investor in question, is a good way of going about building a portfolio.
With regard to specific sectors investors should consider, I have long been a fan of the stability and long-term compounded growth potential of the utilities sector overall. With utilities assets generally fixed (a small amount of growth in terms of infrastructure does take place each year, although many consider this to be relatively immaterial compared to the current infrastructure base), investors who are able to purchase quality utilities assets at today’s prices can take advantage of long-term compounded growth over and above inflation, a recipe for long-term success in any portfolio.
While many analysts point to the fact that utilities, along with REITs, are generally interest-sensitive names and will likely move in a downward trajectory as central banks begin to unwind years of monetary stimulus and move interest rates higher, the defensive nature of the utilities sector is one which I believe outweighs the interest rate risk present with this sector. Should a recession or modest correction take hold again, utilities should outperform other sectors due to the stability and predictability of cash flows – one aspect relatively unique to utilities, and one which I tend to focus on as a long-term investor.
Invest wisely, my friends.
