Technology and health care sectors to be big winners in 2016

Over the past five years, three sectors have delivered monster gains compared to the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO).

Those three are health care, information technology and telecommunications, which have risen 116%, 28% and 103% respectively compared to the ASX 200 gain of 9%.

Those three sectors have delivered in the past and look set to deliver again in 2016. For a start, many up and coming technology companies have yet to reach the heights of being included in the S&P/ASX 200 Info Technology (Index: ^AXIJ) (ASX: XIJ).

Existing health care companies are continuing to benefit from continuing tailwinds of an ageing population, and more demand for health care in our older years. More options for retirement living and additional services for people in retirement also means more opportunities for companies providing those services. Gateway Lifestyle Group (ASX: GTY) and Lifestyle Communities Limited (ASX: LIC) are two companies exploiting rising demand for retirement villages and communities for those pre- and post retirement.

Telcos are constantly being driven by our insatiable demand for data – whether it be subscription video on demand (SVOD) services, faster downloads, increased rollout of internet-connected devices such as televisions and home security systems, not to mention more capable smartphones. Owners of broadband networks and providers of mobile networks such as Telstra Corporation Ltd (ASX: TLS), TPG Telecom Ltd (ASX: TPM) and Vocus Communications Ltd (ASX: VOC) will be set to benefit.

And software is in virtually everything these days, so no surprise that companies that develop software, protect it, perform maintenance on it, install it, market it or virtually anything else to do with software should see strong demand for their products and services.

A transition from desktop software to mobile apps and cloud-based software models, and a move away from the traditional pricing methods towards monthly subscription fees has allowed more companies to afford the software – but also a boost to the software makers. Steadily growing reoccurring revenues and sticky customers mean technology companies have become more attractive as well. Accounting firms Xero FPO NZ (ASX: XRO) and Myob Group Ltd (ASX: MYO) are taking advantage of those moves.

Foolish takeaway

All three sectors, healthcare, telecommunications and information technology should be big winners not just in 2016 but beyond. But investors still need to do their homework as not every company will go on to beat the market.

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Motley Fool contributor Mike King owns shares of Telstra Limited, TPG Telecom Limited, and Vocus Communications Limited. You can follow Mike on Twitter @TMFKinga

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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