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By Sean Peche, portfolio manager at Ranmore Fund Management, UK-based investment manager of Ranmore Global Equity Fund PLC.
Sector classifications are meant to help investors make sense of the market. But when you dig into what's really inside them, they often create more confusion than clarity.
"I see you're overweight Consumer Discretionary - you must be very positive on consumer spending," remarked a client. No, don't conclude that, we question the usefulness of Sector classifications. Especially for Consumer Discretionary.
"Well, look at the MSCI World Consumer Discretionary Index factsheet and you'll see the largest constituent is Amazon." Yes, because they're retail. Except 58% of their operating income is from their cloud business, AWS. Microsoft also has a large cloud business (35% of OI), but they're in the Information Technology (IT) sector. And Alphabet also has a large and growing cloud business, but they're in the Communication Services sector. "Well, that's because of Search and Advertising." Yes. Except Advertising is also a big earner for Amazon.
But aren't the goods that Amazon ship, Discretionary? Yes, but then the other "goods shippers", UPS and Fedex, are in the Industrial Sector. And you know those credit cards you use for your Amazon purchases? Yes. Well, Visa and Mastercard are in the financial sector. But only since 2021. Before that they were Information Technology Sector companies.... ...................... To view our full article Click here
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