Most attractive global sectors: utilities, financials, healthcare

This post is a follow up to Monday's weekly commentary where we demonstrated with an objective z-score model (composed of four financial time-series) that global stocks are trading below their historical mean valuation due to low leverage, high dividend yields and low valuation.

Here we have applied the same principle to MSCI's global sector indices and the chart below shows the relative valuation between the sectors.


Without taking into account variables or interpreting the main macro-economic time-series the model shows that utilities, financials and healthcare are currently the three most attractive sectors. Combining those three sectors actually provides an interesting balance in a portfolio with two defensive exposures (healthcare and utilities) while adding a growth sensitive component of financials.

At the other end of the spectrum we find consumer discretionary which is the only sector valued above its mean since 1995. This sector looks significantly expensive relative to the other sectors. So which industry groups are included in the consumer discretionary sector? They are automobiles, media and retail. Something to consider if you have great exposure to those industry groups.