In this article, we discuss 10 best sectors to invest in the long-term. If you want to see the top 5 sectors popular among smart investors, head directly to 5 Best Sectors To Invest In Long-Term.
The S&P 500 had a robust performance in the first half of 2023, ending June with a gain of over 6%. Overall, the index has risen almost 16% as it enters the third quarter of this year. In addition to that, as we previously reported, the NASDAQ 100 Index has skyrocketed 40% in 2023, regardless of fears about a potential bubble. In 2023, technology stocks, growth stocks, and cryptocurrencies emerged as star performers, benefiting from renewed interest in risk assets. As we enter the second half of 2023, there are signs of inflation starting to cool off. Nonetheless, market experts are skeptical that the Federal Reserve’s efforts to combat inflation are not yet complete, and there is still a possibility of the US falling into recession.
In 2023, Fidelity Investments expects some consumer staples firms to outperform. Ben Shuleva, Fidelity’s sector portfolio manager, commented at the end of December 2022:
“In 2023, many of the trends that emerged in 2022 will probably continue. However, consumers may be more sensitive to further price hikes than they were to previous price hikes—particularly if the economy softens further and the unemployment rate rises. Those best positioned for this backdrop may include companies that can raise prices further without losing sales volumes.”
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Similarly, precious metals like gold are considered to be safe haven assets against a backdrop riddled with inflation, devaluation of currency, and macroeconomic weakness. Eric Strand, manager of the AuAg ESG Gold Mining UCITS ETF, told CNBC in December 2022:
“Central banks as a group have continued, since the great financial crisis, to add more and more gold to their reserves, with a new record set for [the third quarter of] 2022. It is our opinion that central banks will pivot on their rate hikes and become dovish during 2023, which will ignite an explosive move for gold for years to come. We therefore believe gold will end 2023 at least 20% higher, and we also see miners outperforming gold with a factor of two.”
In addition to that, Citibank analysts maintained an “Overweight” rating for the healthcare sector for 2023, setting aside concerns about the past year’s strong performance. They emphasized the sector’s defensive nature and held particular optimism about pharmaceuticals.
Also Read: How to Play The AI Boom And NASDAQ Rally
According to NASDAQ’s “June, Mid-Year 2023 Review and Outlook” report, in the first half of 2023, 7 out of 11 sectors recorded gains, with Technology, Communications, and Discretionary sectors being market leaders. Technology stocks neared their previous all-time high from December 2021. While technology and growth sectors contributed significantly to the strong performance in the early months of this year, there was a noticeable shift towards cyclicals in June, possibly indicating an improvement in economic activity. All sectors ended June with positive returns. Industrials stood out with strong performance in June and continued momentum in early July, reaching new all-time highs. Housing also rebounded despite higher mortgage rates, driven by factors such as favorable demographics and migration patterns. These trends suggest positive prospects for the real estate sector as well.
Some of the top stocks in the market include Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and UnitedHealth Group Incorporated (NYSE:UNH). This article sheds light on some of the best sectors to invest in for the long-term.
Our Methodology
Insider Monkey’s first quarter database tracks the stock picks of 943 elite hedge funds. For this article, we assessed the top 100 stocks popular among hedge funds and calculated the number of companies in each sector. We used the number of companies in each sector from the top 100 hedge fund holdings to rank the following sectors.
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Best Sectors To Invest In Long-Term
10. Real Estate
Number of Companies: 1
According to Research and Markets, the worldwide real estate market was valued at $3.69 trillion in 2021, and it is projected to increase from $3.88 trillion in 2022 to $6.13 trillion by 2030, with a compound annual growth rate (CAGR) of 5.2% during the forecast period of 2023 to 2030. Real estate is one of the best sectors to invest in.
American Tower Corporation (NYSE:AMT) is the most popular real estate stock among hedge funds. American Tower Corporation (NYSE:AMT) is a prominent global REIT recognized for its significant presence in the communication real estate and data center industry. It operates, owns, and develops multitenant communications sites and has a substantial network of data center facilities in the United States. On July 27, the company reported a Q2 AFFO of $2.46 and a revenue of $2.77 billion, outperforming Wall Street estimates by $0.04 and $50 million, respectively.
Overall, 65 hedge funds were bullish on American Tower Corporation (NYSE:AMT) according to Insider Monkey’s first quarter database, with Charles Akre’s Akre Capital Management holding the largest stake in the company.
In addition to Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and UnitedHealth Group Incorporated (NYSE:UNH), American Tower Corporation (NYSE:AMT) is a favorite stock of smart investors.
Akre Focus Fund made the following comment about American Tower Corporation (NYSE:AMT) in its second quarter 2023 investor letter:
“The Fund owns many businesses that stand to benefit enormously from A.I. The compute power demanded by A.I. is growing exponentially and will continue to fuel demand for the wireless and data center infrastructure provided by American Tower Corporation (NYSE:AMT). The two negative detractors from performance this quarter were American Tower and Danaher.”
9. Industrials
Number of Companies: 3
A report from Research and Markets indicates that the global industrial services market is expected to experience steady growth, from $31.35 billion in 2022 to $33.31 billion in 2023, showing a CAGR of 6.2%. Further, the market is anticipated to expand to $40.75 billion by 2027, growing at a CAGR of 5.2% during the period. Similarly, as per Reportlinker, the worldwide industrial machinery market rose from $506.67 billion in 2022 to $545.67 billion in 2023, with a CAGR of 7.7%. The market is projected to further expand to $708.3 billion by 2027, exhibiting a CAGR of 6.7% during that period.
Union Pacific Corporation (NYSE:UNP) is one of the most popular stocks among hedge funds from the industrial sector. Union Pacific Corporation (NYSE:UNP) is an American railroad company that provides transportation services for agricultural products, petroleum, chemicals, construction materials, and automobiles, among others. On July 26, Union Pacific Corporation (NYSE:UNP) declared a $1.30 per share quarterly dividend, in line with previous. The dividend is distributable on September 9, to shareholders of record as of August 31.
According to Insider Monkey’s first quarter database, 85 hedge funds were bullish on Union Pacific Corporation (NYSE:UNP), compared to 83 funds in the prior quarter. Eric W. Mandelblatt’s Soroban Capital Partners is the largest stakeholder of the company, with 8.2 million shares worth $1.6 billion.
Madison Sustainable Equity Fund made the following comment about Union Pacific Corporation (NYSE:UNP) in its second quarter 2023 investor letter:
“Union Pacific Corporation (NYSE:UNP) released its annual Sustainability report. Highlights include improved safety metrics as a result of its comprehensive approach to safe train operations through the use of technology in combination with training of its workforce. Train derailments declined by 21% compared to 2019. The company implemented a new qualitative cybersecurity risk management system to protect from cyber events. To date, the company has not experienced any material disruption due to a cyber attack or threat. The report also highlighted its annual giving with $24 million in donations across 2,500 non-profit organizations in 2022.”
8. Consumer Defensive
Number of Companies: 3
The Morningstar US Consumer Defensive Index had a slight decline of 0.3% in the second quarter of 2023, in contrast to the broader market’s 5.4% gain. However, most stocks in the index still seem fairly valued, trading at a slight discount to their fair value estimates, as per Morningstar. Opportunities exist in consumer-packaged goods and alcoholic beverages, where many companies are undervalued. Consumer Defensive is one of the best sectors to invest in for the long-term.
American retail giant Walmart Inc. (NYSE:WMT) is a prominent consumer defensive stock among hedge funds. On July 30, Walmart Inc. (NYSE:WMT) announced that it has invested $1.4 billion to increase its ownership in the Indian e-commerce company Flipkart by acquiring hedge fund Tiger Global’s stake. This move follows Walmart’s initial purchase of a 77% stake in Flipkart for $16 billion in 2018.
According to Insider Monkey’s Q1 data, Walmart Inc. (NYSE:WMT) was part of 91 hedge fund portfolios, up from 66 in the prior quarter. D E Shaw is the largest stakeholder of the company, with 4.8 million shares worth $709.8 million.
In its Q2 2021 investor letter, ClearBridge Investments, an asset management firm, highlighted a few stocks and Walmart Inc. (NYSE:WMT) was one of them. Here is what the fund said:
“The pandemic has created challenges for businesses large and small; one major challenge for large essential retailers such as ClearBridge holdings Home Depot, Walmart Inc. (NYSE:WMT) and Costco have been ensuring adequate staffing to meet demand under trying conditions. All three instituted enhanced pay practices during the pandemic, with raises, unplanned bonuses and other benefits helping compensate employees for their efforts in a difficult environment. In September 2020 Walmart raised wages for 165,000 employees, including a number of entry positions to $15 an hour. It followed this in February with a raise for 425,000 workers that moved its average pay above $15 an hour.”
7. Basic Materials
Number of Companies: 4
Basic Materials is one of the best sectors to invest in long-term. According to Fortune Business Insights, the global construction materials market was worth $1,272.60 billion in 2022. It is expected to grow from $1,320.01 billion in 2023 to $1,729.62 billion by 2030, with a CAGR of 3.9% during the forecast period. As per a separate report by Fortune Business Insights, the global core materials market was valued at $1,937.5 million in 2022. It is expected to increase from $2,056.3 million in 2023 to $3,700.2 million by 2030, exhibiting a CAGR of 8.8% during the forecast period.
Freeport-McMoRan Inc. (NYSE:FCX) is the preferred basic materials stock among smart investors. On July 20, Freeport-McMoRan Inc. (NYSE:FCX) reported a Q2 non-GAAP EPS of $0.35, falling short of market estimates by $0.02. Revenue for the quarter increased 5.9% year-over-year to $5.74 billion, beating Wall Street consensus by $80 million. In the second quarter of 2023, consolidated production figures were as follows – 1.1 billion pounds of copper, 483 thousand ounces of gold, and 21 million pounds of molybdenum.
Among the hedge funds tracked by Insider Monkey, 77 funds were bullish on Freeport-McMoRan Inc. (NYSE:FCX) at the end of Q1 2023, compared to 68 funds in the prior quarter. Ric Dillon’s Diamond Hill Capital is the largest stakeholder of the company, with 9.50 million shares worth $389 million.
Diamond Hill Large Cap Strategy made the following comment about Freeport-McMoRan Inc. (NYSE:FCX) in its Q4 2022 investor letter:
“Other top contributors during the quarter were copper producer Freeport-McMoRan Inc. (NYSE:FCX) and health care facilities operator HCA Healthcare. With little fundamental news to report, Freeport-McMoRan’s share price advance in Q4 reflected a rebound in copper prices, driven by the recognition that copper inventories are low relative to historical norms. We believe the company continues to have meaningful price and volume leverage in a copper constrained world.”
6. Energy
Number of Companies: 6
Energy sector remains one of the best sectors to invest in for the long-term. As per a report by The Business Research Company, the global oil and gas market increased from $6,989.65 billion in 2022 to $7,330.80 billion in 2023, with a compound annual growth rate of 4.9%. The market is forecasted to further expand to $8,670.91 billion by 2027, with a CAGR of 4.3% during that period. According to Precedence Research, the global power generation market was valued at approximately $1.8 trillion in 2022. It is projected to reach around $3.9 trillion by 2032, exhibiting a CAGR of 8.04% from 2023 to 2032.
Occidental Petroleum Corporation (NYSE:OXY) is the preferred energy play for most smart investors this year. It is involved in acquiring, exploring, and developing oil and gas properties in the United States, the Middle East, North Africa, and Latin America. On July 27, Occidental Petroleum Corporation (NYSE:OXY) declared a quarterly dividend of $0.18 per share, in line with previous. The dividend is payable on October 13, to shareholders of record on September 8.
According to Insider Monkey’s first quarter database, 81 hedge funds were bullish on Occidental Petroleum Corporation (NYSE:OXY), compared to 71 funds in the prior quarter. Warren Buffett’s Berkshire Hathaway is the largest stakeholder of Occidental Petroleum Corporation (NYSE:OXY), with 211.70 million shares worth $13.2 billion.
Like Microsoft Corporation (NASDAQ:MSFT), Meta Platforms, Inc. (NASDAQ:META), and UnitedHealth Group Incorporated (NYSE:UNH), elite hedge funds are piling into Occidental Petroleum Corporation (NYSE:OXY).
Here is what Smead Value Fund has to say about Occidental Petroleum Corporation (NYSE:OXY) in its Q3 2022 investor letter:
“Our top-performing stocks in the quarter include Occidental Petroleum (NYSE:OXY). Oil and gas have been the best game in the stock market town this year and it was a pleasant surprise to see home builders pick up even with dour news on interest rates and the economy. For the first three quarters of the year, we should change the name of our fund to the Jed Clampett Fund. Occidental Petroleum (NYSE:OXY), was one of the standouts. Up through the bear market came a “bubblin’ crude!”
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Disclosure: None. 10 Best Sectors To Invest In Long-Term is originally published on Insider Monkey.