3 breakout sectors for momentum investors

Thursday, Nov 01 2012 by
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3 breakout sectors for momentum investors

London markets have enjoyed a rocky but undeniable mini bull run since early June, with the FTSE 100 now a good 600 points ahead of where it was five months ago. While many investors are understandably wary of reading too much into short term market movements like these, it's still worth tracking which companies and sectors have been benefitting from the advance. 

Tracking individual companies that are displaying strong relative price strength in the market and perhaps even trading at (or close to) their 52 week highs has been shown to be a useful buy or sell indicator. The momentum concept was originally observed in a 1993 paper by Jegadeesh and Titman, and you can read more about the phenomenon here. In recent weeks we have looked at various shares that are enjoying strong price strength, including housebuilders, oil companies and bargain Piotroski stocks and why they could still have further to run. 

Sector momentum rocks 

While it's worth monitoring which stocks that are racing ahead of the pack, a powerful twist on the concept of momentum (and arguably an even  more successful trading strategy) is to look at which sectors are leading the momentum charge. This was the focus of an influential 1999 study by Moskowitz and Grinblatt, which found that industry momentum investment strategies, which buy stocks from past winning industries and sell stocks from past losing industries, can be highly profitable. Moreover, they found that industry momentum almost always subsumes individual stock momentum – meaning that once you control for industry momentum, regular stock momentum is much less important. 

It was a similar story in a 2011 study by Hong, Jordan and Liu, which found that a trading strategy using the 52-week high effect (where stocks at or near their 1-year price highs often go on to trade higher) was considerably enhanced by focusing on sectors rather than individual stocks. 

So how can investors use these findings in practice? At Stockopedia we track the 52 week high screen and among the most interesting patterns that emerges from the 50-strong universe of companies are the hot sectors on the move. Not only does this screen give you a feel for the industries that are in favour among investors but the stock breakdown reveals the types of companies that are leading the pack…

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Disclaimer:  

As per our Terms of Use, Stockopedia is a financial news & data site, discussion forum and content aggregator. Our site should be used for educational & informational purposes only. We do not provide investment advice, recommendations or views as to whether an investment or strategy is suited to the investment needs of a specific individual. You should make your own decisions and seek independent professional advice before doing so. Remember: Shares can go down as well as up. Past performance is not a guide to future performance & investors may not get back the amount invested.


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Mothercare plc is a United Kingdom-based retailer for parents and young children. The principal activity of the Company is to operate as a specialist multi-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre (ELC) brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear, home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the globe in approximately 60 countries through its franchise network. more »

LSE Price
121.75p
Change
 
Mkt Cap (£m)
208
P/E (fwd)
10.8
Yield (fwd)
n/a

Marks and Spencer Group plc is a retailer in the United Kingdom. The Company is the holding company of the Marks & Spencer Group of companies. The Company operates through five segments: M&S for Business, M&S Bank, M&S Energy, M&S Outlet and M&S TV to provide the services of Christmas Shopping, Style & Living, Women, Lingerie, Beauty, Men, Kids, Home, Food & Wine, Flowers & Gifts, Outlets, Television, Energy and M&S Bank. It offers clothing and home products, as well as foods, sourced from around 2,000 suppliers globally. The Company has over 798 stores across the United Kingdom in high streets and retail parks, as well as stations, airports and other locations ranging from out-of-town and flagship stores of over 100,000 square feet, to Simply Food stores of around 7,000 square feet. The Company has over 455 international stores in 54 territories across Europe. more »

LSE Price
423.5p
Change
 
Mkt Cap (£m)
6,873
P/E (fwd)
11.8
Yield (fwd)
4.7

Next Plc is a United Kingdom-based retailer offering clothing, footwear, accessories and home products. The Company's segments include NEXT Retail, a chain of over more than 500 stores in the United Kingdom and Eire; NEXT Directory, an online and catalogue shopping business with over four million active customers and international Websites serving approximately 70 countries; NEXT International Retail, with almost 200 mainly franchised stores; NEXT Sourcing, which designs, sources and buys NEXT branded products; Lipsy, which designs and sells Lipsy branded younger women's fashion products, and Property Management, which holds properties and property leases which are sub-let to other segments and external parties. Lipsy also sells directly through its own stores, Website, to wholesale customers and to franchise partners. The Company's franchise partners operate around 188 stores in 37 countries. more »

LSE Price
5085p
Change
 
Mkt Cap (£m)
7,633
P/E (fwd)
11.3
Yield (fwd)
4.3



  Is Mothercare fundamentally strong or weak? Find out More »


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About Ben Hobson

Ben Hobson

Strategies Editor at Stockopedia. My goal is to help private investors learn and invest with confidence through the articles, ebooks and other resources we publish on site. I also occasionally bunk off to interview famous investors at expensive restaurants. I studied History at Aberystwyth University, trained as a journalist and covered business news and corporate finance before settling in as one of the first staff members at Stockopedia.  Away from Stockopedia I'm a mountain bike junkie. more »

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