As the stock market enters the final month of the year, investors will start to look back and evaluate how their own portfolios have performed and also how the various indexes and other peer portfolios have performed by comparison.
One significant determinant of portfolio performance is stock selection. Investors who began the year with significant exposure to the resource sector via miners and also mining service firms are likely to have had a difficult time keeping up with the broad-based indexes such as the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO), which has gained 14.5% for the 11 months to 29 November 2013.
For example, diversified miner BHP Billiton (ASX: BHP) has gained less than 1% while mining service stock Worleyparsons (ASX: WOR) is down 30%. In comparison, a number of businesses within the health care sector have been stand-out performers.
CSL (ASX: CSL) is up 27.5%. After reporting a profit in 2012 of US$1 billion, the biopharmaceutical reported profit of US$1.2 billion in 2013.
Ramsay Health Care's (ASX: RHC) share price has rallied 36.5%. 'Core' profit increased from $253 million in 2012 to $291 million in 2013.
ResMed's (ASX: RMD) share price has increase by 36.6% over the 11 months of 2013. With profits rising from US$254.9 million to $307.1 million over the full year to 30 June 2013 and with profits continuing their impressive rise in the first quarter of 2014, the stock has continued to be supported by investors.
Fisher & Paykel Healthcare (ASX: FPH) has surged 73.6% after reporting a net profit after tax of NZ$77.1 million, up from NZ$64.1 million the year before.
Foolish takeaway
Cyclical sectors such as mining are prone to booms and busts, making the sector desirable to own at one point in the cycle and one to be avoided at another point in the cycle. In comparison, an aging population gives the health care sector a nice tailwind.
However, that tailwind alone has not been the cause of the exceptional performance of the health care stocks outlined above. Rather it is the high earnings growth each firm recorded over the year look for future growth and a market which has been prepared to pay a higher price-to-earnings multiple for stocks than 11 months ago.
