Significant Changes Since Last Week:
This past week certainly was not without excitement as the market whipsawed several hundred points on a day-by-day basis. While it was exciting to watch, it did not make any major changes in the longer term asset allocation. However, there are some minor changes to align the allocations to relative weights.
Let us first look at the areas where we are suggesting overweight positions relative to the market. The largest overweight position would be in Health Care at a recommendation of 15.5%. The market is currently at 14.6% and our current value score for the sector is 17.1. The fair value sector score is higher at 18.6. (The sector score numbers are NOT percentage numbers.). With a relative spread of 1.5 points between the current score and the fair value score, we are recommending a near 1 percentage point overweight for the sector. We have increased the recommended weight to 15.5%. This is an increase of 0.1% from last week.
The next highest overweight position is in Consumer Discretionary. At 12.5% market weight the sector represents a significant part of the overall market. The current sector score is 29.0 with a fair value sector score of 30.0. The recommended allocation for the sector is 12.7% and remains unchanged at 0.2 percentage points above the market weight of 12.5%.
The other sector that deserves mention due to relative over/under weighting is Financials. The market weight for Financials inclusive of Real Estate is 16.3%, which is the second largest allocation in the market behind Information Technology. The current sector score is 13.7 with a fair value sector score of 14.5, a 0.8-point spread. The recommended sector weighting for Financials has been reduced by 0.3 percentage points to 16.9% from 17.2% due to better relative performance in the sector last week. This is still an overweight from the market by 0.6 percentage points.
There are three sectors that have underweight recommendations. They are: Consumer Staples, Industrials and Utilities. Consumer Staples is the largest of the three at 10.1% market weight. The current sector score is 9.2 and the fair value sector score is close at 9.0, a 0.2 percentage points difference. The recommended weight for the sector is 9.7% which is an increase of 0.2 percentage points from last week. The sector recommendation remains underweight to the market by 0.4 percentage points.
Health Care received a slight increase of 0.1 percentage point in the sector recommendation to 15.5%, up from 15.4%. The recommendation is to overweight the sector by 0.9 percentage points.
The recommendation for Industrials allocation has increased by 0.2 percentage points to 9.6%, up from 9.4%. This is remains an underweight from the market of 10.0% by 0.4 percentage points.
Information technology, the largest sector, earned a slight drop in recommended allocation to 20.0%. This is a drop of 0.2 percentage points from the previous week. This weighting is very near the market weight of 20.3%.