Looking across the 2022 calendar year, the best-performing ASX sectors are energy and utilities.
Energy, by far, has been the standout given the macroeconomic and geopolitical forces at play. Europe now faces potential challenges ahead in its struggles with retail energy prices and overall supply.
Adding to the pressure has been surging inflation and the sharpest increase in policy interest rates in decades.
Central banks certainly have a dynamic battle on their hands, trying to balance the economy and asset prices with this interplay of interest rates and inflation.
Alas, equities have taken an absolute beating in 2022, particularly those shares tied to companies with weaker balance sheets and unprofitable earnings.
At the time of writing, the benchmark S&P/ASX 200 Index (ASX: XJO) is down 1.58% on the day at 6,655 points. The index has collapsed more than 10% this year to date.
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Segments to look for in Q2?
Whilst the market continues to price in a potential decrease in corporate earnings this year, energy shares continue to rally.
However, energy is one sector portfolio manager at Bell Asset Management Ned Bell is avoiding in the current climate. Bell cited a lack of "franchise strength" in the energy investment case, The Australian Financial Review (AFR) reports.
Instead, he prefers exposure to technology, healthcare, and consumer segments and believes these remain the growth areas looking ahead.
Bell's Global Equities is down 18.3% this year to date, with the portfolio manager "[admitting] he's made some mistakes", the AFR reports.
Meanwhile, Goldman Sachs Asset Management echoed Bell's posture in its monthly newsletter, 'Change of Season'.
Covering themes such as inflation, rates and recession risk, and a "changing world order", Goldman Sachs asset managers still believe in "long-term secular growth themes, such as technology and environmental sustainability".
Companies in technology, healthcare, and environmental sustainability have been "the most sensitive to expectations that rates will keep rising," the newsletter said. "[B]ut we have not witnessed a broad-based deterioration of fundamentals."
It added:
In our view, the pullback offers investors the opportunity to gain exposure at more reasonable prices. An inflationary environment also encourages businesses to invest in technology, and tech companies offering innovative products tend to exert considerable pricing power, allowing them to pass on input costs to customers.
The case for commodities
In contrast, portfolio managers at the world's oldest hedge fund, Man Group Limited, believe that commodities "are a crucial part of multi-asset portfolios".
"This is even more true if indeed we enter a prolonged period of high and volatile inflation, as per our expectation," the Group noted in September 21 note.
"Furthermore, they provide attractive diversification benefits, albeit least in period of deflation," it added.
In this view, there appears to be selective opportunities in just about all sectors right now, according to various sources.
One theme remains consistent amongst all commentary though – quality business models and rigorous analysis of company fundamentals.
Returns for each of the major sectors mentioned above are plotted for this year to date below. Energy, in dark blue, remains the clear winner.
