With certain sectors of the global economy seeing impressive price appreciation of late, many investors remain focused on chasing returns in sectors which have continued to show the ability to outperform in recent years.
Growth industries favoring companies heavy on innovation and light on heavy industry has driven valuation multiple expansion in glamour industries which may otherwise be viewed as heavily overvalued.
While some exceptions remain (I believe Apple Inc. (NASDAQ:AAPL) remains an excellent pick), it is generally the case that multiple expansion has gotten out of control.
Value-focused sectors which have been largely overlooked may just be undervalued enough that long-term investors considering sectors to buy and hold for the next decade may just ignore the potential short-term negative volatility of such sectors in favor of the defensive/value upside of such sectors.
Energy and commodities are two sectors which have been particularly hard-hit in recent years, and are two sectors value-seeking investors have continued to buy into, despite stubbornly low global commodity prices and high debt loads among many major producers.
As commodity prices have continued to stay low for a relatively long period of time, the biggest and best energy operators have cut costs and increased operational efficiencies, driving the attractiveness of these investments for value investors.
One ETF which does an excellent job at identifying the best of the Energy sector is the iShares S&P/TSX Capped Energy Index ETF (TSX:XEG), skewed toward some of the biggest and best Canadian energy producers.
Invest wisely, my friends.
