Last Updated on 9 January 2021 by F.R.Costa

There’s no doubt we’re in the late-cycle phase of the business cycle. But that doesn’t mean we should go out of the market… Article originally published at Master Investor Magazine May 2019 Issue 50 p. 40-45.

In a late-cycle economy there are four sectors that tend to outperform the broad market: they are utilities, consumer staples, healthcare and energy.

When the economy enters a period of deceleration, investors tend to espouse more rigorous criteria when it comes to their holdings. As profit forecasts get trimmed, growth companies tend to underperform. Meanwhile, investors may rotate their holdings towards the well-established enterprises, which offer quality balance sheets, and stable profit and dividend growth. These companies are usually represented by factors like (high) quality, (low) volatility, and (large) size.

Some investors may wish to cut most of their equity holdings and overweight fixed income in their portfolios. Still, there are risks, as duration risk is at a high, which means investors need to concentrate on the short-term part of the bond market if they want to effectively reduce risk. For less risk-averse investors, there are still good opportunities in the equity market. Sectors like utilities, consumer staples, healthcare and energy historically perform well when markets in general are under pressure.

About F.R.Costa

Filipe has more than 20 years experience with financial markets. He holds a degree in Economics with a specialisation in Finance and he's currently finishing a PhD in Finance. He used to work as financial consultant and research associate but then decided to return to academia five years ago. Since that, he has been an Invited Lecturer, teaching courses on Investments, Financial Markets, and Monetary Economics. He is also a regular contributor writer at The Master Investor Magazine.

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