Insight & action

The Best Performing Sector This Time of Year: Industrials

November 1 means the annual mad dash by hedge fund managers to maximize year end performance. They stand to take home 20 cents on every dollar earned over the next 2 months. So the stakes are high, especially since villas on St. Barths in February don't come cheap!

Fortunately, the analytics team at Ned Davis Research ( has run the numbers and determined the single best performing sector in November and December since 1985: Industrials.

We can also chart this outperformance over time, creating an average for all observations since 1985.

Industrials have generated positive returns in November 68 percent of the time, compared to 50 percent for the S&P 500 Index. December results have been even stronger, 79 percent vs 53 percent.

So historical precedent argues for buying industrials, so does this morning's data. ISM Manufacturing beat the estimate and registered a 29-month high at 56.2 (any reading above 50 implies expansion). We would also note stronger purchasing managers data from Australia, China, Japan, S. Korea, Taiwan. Curiously, Europe has proven the one exception in the past 24 hours, with weaker data from the U.K., Sweden and Switzerland... recall our weaker euro commentary on 10/29.

Positioning to capitalize on industrial strength can be accomplished with one simple vehicle, the iShares Industrial ETF IYJ. The fund holds a basket of 222 industrial companies and the top 10 account for just 36 percent of assets, so it's well diversified. It's also up 30.4 percent this year, meaning it's already beating the S&P 500 Index. We would suggest staying with what's working.

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