Here's how to rebalance your portfolio

When you buy stocks in sectors and sub-sectors of the market, keep your goals in mind. If you're a conservative, income-seeking investor, focus on utilities, financial stocks and consumer stocks. If you're aggressive, buy more manufacturing stocks and resource stocks.

As a general rule, we advise you to keep at least 10 per cent-but no more than 30 per cent-in each of the five main economic sectors. Remember, too, that within any given sector or sub-sector, individual stocks will perform differently from one another.

Here's our outlook for the next six to twelve months for the five main sectors of the economy. Our long-run outlooks can differ from our short-run outlooks.

Financial stocks

We still expect the banks to beat the market. Interest rates are expected to continue to rise, which raises their net interest income. We still expect mutual funds to match as they offset competition by the banks with exchange-traded funds. We still expect insurers to beat due to rising interest rates and fast growth abroad, particularly in Asia.

Utilities stocks

Higher interest rates make utilities relatively less attractive. We now expect gas and electricity utilities to lag. We now expect pipelines to lag as they face fierce opposition. We still expect the telephone oligopoly to match, as they add wireless subscribers.

Manufacturing stocks

We still expect building materials stocks to match as construction and renovation proceed. We still expect chemical stocks to match as they merge and cut costs. We still expect fabricating stocks and engineering stocks to outperform as North American governments invest in infrastructure. We still expect steel-related stocks to lag due to US protectionism. We still expect technology to outperform as firms invest to cut costs. We now expect transportation stocks to match. Protectionism will reduce the movement of goods internationally. Then again, the global economy is growing almost everywhere.

Consumer Stocks

We still expect traditional communications stocks to lag, except for those that serve online advertisers. We now expect food, beverage and tobacco stocks to lag as higher interest rates reduce their appeal and alcohol and tobacco stocks have image problems. We still expect Canada's drugstores and small health care stocks to lag, due to regulations and lower drug prices. We still expect surviving merchandisers to match as weaker competitors vacate the market.

Resources Stocks

We now expect gold stocks to outperform as inflation accelerates and they rationalize operations. We now expect oil and gas stocks to lag as US shale drillers beat their Canadian counterparts. We still expect mining stocks to outperform. Global growth raises demand and commodity prices. We now expect forestry stocks to match. US duties are partly offset by brisk construction and rebuilding in Houston, the Florida Keys and Puerto Rico after the hurricanes.

Sector overview

It's best to diversify across the five main sectors of the economy: finance, utilities, consumer products and services, manufacturing and resources. Each of these broad sectors is made up of sub-sectors that often have different outlooks.

Remember, though, there's danger in loading up on stocks in sectors that we expect to beat the market. That's because investors often bid up the prices of such stocks, making them vulnerable in market setbacks. Stocks in sectors that we expect to underperform, by contrast, often trade at bargain levels. Besides, predictions-including ours-are susceptible to errors. So make sure you own some stocks even in sectors that we expect to lag the market.

This is an edited version of an article that was originally published for subscribers in the March 9, 2018, issue of The Investment Reporter. You can profit from the award-winning advice subscribers receive regularly in The Investment Reporter.

The Investment Reporter, MPL Communications Inc.133 Richmond St. W., Toronto, On, M5H 3M8, 1-800-804-8846