Why this strategist cautions against sector-based investing
As Big Bank earnings beat Wall Street's expectations, Charles Schwab chief investment strategist Liz Ann Sonders adds the financials sector (XLF) to her list of growth sectors: communication services (XLC), consumer discretionary (XLY), and tech (XLK). Despite her expectations that these four sectors will grow, the strategist tells Catalysts Co-Hosts Madison Mills and Seana Smith that only two sectors have an Outperform rating and outlines why sector-based investing may not be the best strategy. Of Sonders' 11 sector views, the only two she has an Overweight rating on are financials and communications. "We continue to think that factor-based investing is maybe more important than sector-based investing," the strategist explains. "Sector-based investing is somewhat monolithic ... [While] factor-based analysis, which is really just screening for investing based on characteristics." "We have had a quality factor bias," she adds, outlining that she looks for strong earnings momentum, healthy balance sheets, ample interest coverage, and strong free cash flow: "We think that will continue to be where performance is more consistent at the factor level than at the sector level. So be really careful about the monolithic kind of investment themes, some of which include sector-based investing." Watch the video above to learn more about the strategist's focus during the fourth quarter earning season. To watch more expert insights and analysis on the latest market action, check out more Catalysts here. This post was written by Naomi Buchanan.
