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U.S. Large Cap Sector Asset Allocation: 2015 Jan

Energy remains undervalued and presents the largest sector opportunity for return to fair value. Market weight for 2015: JAN is 8.4%. This presents a 2.71 percentage point spread from fair value. Undervaluation at this magnitude is sizable and presents opportunities for consideration. Consumer Discretion is also an area of opportunity as the consumer gains confidence from lower energy expenses and increasing economic benefit. Allocation to the sector would be a 13.2% on a fair value basis.

The one sector that might be considered for underweighting is Healthcare. Great expectations were in place at the beginning of 2014 for health related enterprises and many still are holding on to these expectations. Visionaries continue to point to an aging population and the expected increase in medical related expenditures. Unfortunately, higher expenditures and profitability are not always linked, just ask any airline. Price expectations have moved ahead of reality for the sector and consideration should be given to reducing weightings by 1.41 percentage points. Or, at least not adding to existing positions.

The remaining sectors are operating well within fair value and should produce results in line with historical expectations and a slightly improving U.S. market.

Steady and boring is good.

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