Having now gone through three market crashes over the last 25-30 years, the wisdom of this approach is evident. In absolute terms, large cap consumer staples have outperformed both the S&P 500 index and the majority of sectors since 1990:
In risk-adjusted terms, consumer staples have reigned supreme, with healthcare being the only other sector to register an excess Sharpe over the period:
In the mid cap universe, five sectors outperformed the parent index:
But, again, in risk-adjusted terms, consumer staples registered the highest excess Sharpe:
Finally, even in small caps, the same handful of sectors, – utilities, staples, healthcare, etc. – outperformed the index:
But, once again, consumer staples registered a top-two risk-adjusted result, this time trailing only utilities:
Of course, these results are backward looking, but there is something to be said for the consistently durable risk-adjusted results of these basic industries at every level of market capitalization over a period that encompasses multiple recessions and stock market crashes. While not exactly Shakespearean, the advice given Mr. Sathers – ‘Eat ’em, drink ’em, smoke ’em, go to the doctor, and look good when you get there’ seems to have been prescient indeed.
Note: For each data series, the start date was the earliest available for each index.