Brown Brothers Harriman (BBH) Strategy Research has launched the 2005 Portfolio Strategy Outlook.
The methodology behind the 2005 Portfolio Strategy Outlook emphasizes a multi-discipline investment process, combining macro and industry-specific fundamentals, quantitative models and in-depth technical analysis. Conducted across 59 industries for the S&P 1500 on an equal-weighted basis, the research process is designed to search for anomalies, extremes and inflection points in an effort to move away from strict benchmarking and achieve greater results in a market of relatively low absolute returns.
BBH’s 2005 Portfolio Strategy Outlook includes weightings for each industry. 2005 sector outlook includes: “Unfavorable:” Industrials, Materials and Energy; “Favorable:” Consumer Discretionary, Technology and Healthcare; “Neutral:” all remaining sectors.
On a macro level, 2005 may provide a surprise as the US consumer shows relative strength, while the manufacturing side takes a relative breather. Also on the macro level, S&P earnings growth is likely to moderate. Historically, this is an environment that rewards companies that can report sustained earnings growth, and it has traditionally led to relative out-performance in health care, consumer staples, and technology. P/E multiples could show some cyclical improvement, which should benefit larger-cap growth stocks in 2005.
The publication was compiled by a research team under the direction of newly appointed Director of Portfolio Strategy, Brian Rauscher. Rauscher served as a Strategist at Morgan Stanley and U.S. Trust before joining BBH earlier in 2004.
“Portfolio strategy is more important than ever today, and BBH’s new research methodology and insight comes as a much needed shift in perspective,” said Rauscher. “Our research shows that even when sector influences near their lows, the spread between the best and worst sector is still 20 percentage points a year. In addition, the minimum performance differential between S&P 1500 industries has been a shocking 50 percentage points since 1991, while the average exceeds 100 percent.”