We all want to beat the S&P/ASX 200 (INDEXASX: XJO), right?
Of course! It's the benchmark against which almost all investment worldly comparisons are made. It also happens to be down 16% in the last 12 months. And it turns out there has been a pretty simple way to beat the S&P/ASX 200 (INDEXASX: XJO) over that time; avoid financial stocks.
Financial stocks make up 46% of the ASX200 and as a sector it (financials) has plummeted 25% in the last 12 months. We can blame this largely on the banks which have been hammered after capital raisings and investor fears of growing bad debts from lending to everything from energy and resource companies, or residential property.
Commonwealth Bank of Australia (ASX: CBA) is down 22% in the last year, while National Australia Bank Ltd. (ASX: NAB) is down 34%.
Where to invest instead
Taking financials out, there are two market sectors which are, by comparison, alive and kicking; healthcare and Information Technology.
At current prices, my top picks from each sector are:
- Heathcare: CSL Limited (ASX: CSL)
- Info Tech: iSentia Group Ltd (ASX: ISD)
In particular for blood product company CSL, I like the consistent revenue growth, high margins and regular reinvestment in R&D which keeps the company growing. Between 2010 and 2014 the company's earnings per share (eps) compounded at an exceptional rate of 11.5% per year.
The Info Tech index has relatively few constituents, but my preferred among them is iSentia Group Ltd (ASX: ISD), which gathers and analyses data from media sources on behalf of companies. I like iSentia's unique offering in a fast-growing niche. The company is forecasting revenue growth of up to 24% in the 2016 financial year.
Foolish takeaway
Although the financial sector is attractive for its low earnings ratios and high (trailing) dividend yields, investors really wanting to smash the S&P/ASX 200 should consider venturing towards some of the smart, growing tech and healthcare companies.
