Key Investment Sectors for 2013

Financial Planning

January 2013

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Key Investment Sectors for 2013

A presidential election can influence the investment markets based on regulatory policy guided by the White House and current Congress. However, markets are driven more by economic factors, business fundamentals, interest rates, the global economy and mass demographic shifts – such as aging baby boomers and the growing emerging market middle class.

The following is a rundown of industries and sectors likely to see positive performance in 2013 based on a combination of these factors.

Real Estate

The nation’s shadow housing inventory has been reduced faster than expected, with more primary investors re-entering the market every day. This renewed confidence is driving an increase in mortgage lending and market prices. The Bank of America Merrill Lynch research team anticipates that the recovering U.S. real estate market will be one of the best investment themes for the next three to five years, forecasting a 36 percent return over the next 10 years. Sectors expected to benefit include construction, building materials, home renovation retailers, money center banks, specialty finance companies, U.S. bank bonds and mortgage REITs. Also note that rebuilding efforts resulting from Superstorm Sandy should provide an economic boost.

Health Care

Now that the Affordable Care Act is expected to move full speed ahead, Medicaid managed care plans, pharmaceutical companies, hospitals and pharmacy benefits managers are likely to prosper. The cultural obesity trend, which accounts for about 20 percent of annual medical spending in the United States, is also likely to offer opportunity in the areas of pharmaceuticals, food, commercial weight loss, diet management and nutrition, as well as sports apparel and equipment.

Energy

The United States is working toward domestic energy independence, spurred recently by advances in extraction technology for nonconventional energy sources. Direct beneficiaries of new innovations in this area will include domestic oil producers, refiners and oil services firms, while indirect beneficiaries will include chemicals, retail, transports and utilities. In addition, President Obama’s policies support expansion of renewable energy sources such as wind power generators.

Technology

Technology remains attractively valued as business spending continues to optimize productivity. Many U.S. tech companies are cash rich and attractively valued. Sectors poised for outperformance include cloud computing, big data, Internet gaming, smartphones and servers.

Manufacturing

Manufacturing is poised for a rebirth given renewed interest to bring manufacturing jobs back to America. In general, labor costs in emerging market countries are rapidly increasing while they remain flat in the United States. Lower costs could also encourage foreign companies to build manufacturing facilities here in order to compete with U.S. companies – which bodes well for domestic jobs and GDP growth, as well as investors.

Europe

Now that the fear of a Eurozone breakup appears to be behind us, the region has strengthened significantly with stabilizing growth and high central bank liquidity. European basic materials, autos, banks, financial services, energy, media and healthcare are all sectors exhibiting improving fundamentals.

Emerging Markets

China is expected to lead growth in the emerging market countries. As Chinese workers have improved their skills and productivity has increased, they are creating higher value-added goods and producing more for the domestic market. Domestic industries that appear poised for growth opportunity include service-oriented sectors such as healthcare, travel and information technology.

Precious Metals

Rising inflation and ongoing policy easing by the Federal Reserve and European Central Bank are likely to push gold and silver prices higher. A shortage in platinum and palladium is anticipated and increased offtake agreements from industrial users signal that platinum could outperform gold.

High-Yield Bonds

High-yield bonds still offer relatively good credit quality metrics with attractive valuations given the current low-yield environment. While returns will likely be lower than 2012, the asset class offers a better hedge against interest rate risk and is expected to return about 7 percent in 2013, according to the December Research Investment Committee Report by Bank of America Merrill Lynch. High-yield holdings in Municipal Bonds include healthcare, transportation, high-grade, tax-backed credits and general obligation bonds.

As always, consult a tax and investment professional to obtain the most current and accurate information for your 2013 investment endeavors.

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