Quilt Map from Timbukone illustrates the variability of sector returns

Timbukone, a major provider of software and database solutions to the investor community, recently released their annual “quilt map” for market sectors. The quilt map is a visual representation of the JSE’s top twenty performing market sectors over the past ten years and provides a clear indication of how variable market sector performance can be.

Alex D’Aloisio
Alex D’Aloisio

“Our quilt map ranks the top 20 performing sectors within each year,” says Alex D’Aloisio from Timbukone. “The quilt map enables the user to see how a sector performed in a certain year and how that sector performed in previous or subsequent years.” He says that a good example is the illustration depicting the Forestry and Paper sector performance. It shows that it has been consistently bad for eight years, but in 2012 and 2013 it was among the top performers.

It is also clear from looking at the quilt map that certain sectors such as fixed line telecommunications are very volatile, appearing almost as frequently towards the top of the map as it appears towards the bottom. The media sector has performed consistently well over the past ten years aside from a sharp drop in 2011. The quilt clearly indicates that past performance is not a good forecaster of future performance.

Timbukone’s quilt map for market sectors ranks the different sectors in 2013 to determine what the top 20 sectors are but removes sectors that have no comparative history. “This is done so that we can see how sectors performed over several years,” says D’Aloisio.

To say things are unusual in the investment world is underestimating what a tumultuous time it is for financial analysts and both private and corporate investor managers. There is a significant amount of change within the market, characterised by a search for yield, changing demographics, overall risk aversion, and a search for returns amidst these noteworthy market changes. The big question seems to centre on how to manage this growing risk aversion and still deliver a decent return on investments.

Market specialists suggest that diversification is a key investment discipline. Supporting the age-old proverb, “Don’t keep all your eggs in one basket” D’Aloisio says investors should search for diversified, non-correlated investment options and could consider using a quilt map as one of their research tools.

Thematic investing, or investing based on emerging themes, is not always a failsafe approach. D’Aloisio says that many people invest in a seemingly hot theme, assuming it is a safe bet and then they get disappointed when the hot theme fades away.

There are several ways to view sector performance and Timbukone plans to include a variety of variations for their quilt map such as top unit trust performers, top performers in the commodities market, major forex rates and the performance of shares on the JSE.

“Using a quilt map enables a user to easily assess the historical performance of a sector, as well as other asset classes and investment products, relative to comparative sectors on the market,” concludes D’Aloisio.

Quiltmap – JSE sector – Top 20 sectors

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Quilt Map from Timbukone illustrates the variability of sector returns