What drives the performance of your portfolio: the sector or the country?

27 April 2021

4 minute read

Last year, we saw a change of President in the US and the UK leaving the EU. But did these headline events drive the performance of your portfolio or was it due to something else? In this article, we examine how sector performance is often the driver of returns across different markets.

Who's it for? All investors

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

What you’ll learn:

  • Different regional markets have a vastly different make-up.
  • Should you buy the UK market post-Covid and Brexit?
  • How the sector make-up of markets was one of the key drivers of performance in 2020.

During 2020, as well as the pandemic investors were faced with a number of other conundrums – the US presidential election, in the UK we were thinking about Brexit, and internationally there were increasing tensions between the US and China.

These big issues were played out on a regular basis in the press and so were front and centre of investors’ minds. So, when thinking about the prospects for various regions and their stock markets, should we think about these issues? And, are these the main issues impacting relative regional market performance?

Or, is something else driving those stock market returns from different countries?

What happened in 2020?

In 2020, we saw very different performance from different markets. Nearly all markets sold off sharply in March. However, the European market didn’t recover nearly as quickly as the US, and the UK was still negative at the end of the year. Was this down to how the countries handled the pandemic?

While it is tempting to just look at these headline numbers, it is more important to look at what lies beneath and this helps us decide our future strategy.

Are sectors similar sizes across markets?

The different regional markets have a vastly different make-up. The US market is weighted towards IT and communication services (e.g. the likes of Google). Meanwhile, the UK market has higher allocations in materials, financials and consumer staples (e.g. Rio Tinto, Unilever or Tesco).

If you recall what happened in 2020, the market performance was dominated by certain sectors, namely IT companies, communication services, and consumer discretionary (goods and services that are considered non-essential by consumers). When we break down performance across sectors and regions we start to see some patterns forming where certain sectors’ performance is fairly similar across the world.

So, the question is whether the region is important. Should we focus on the distinct political and regional risks, or is the market performance a function of the sectors?

Looking in more detail at 2020, we note that the performance of the energy and materials sectors was almost identical in the UK and US. In financials, utilities and the real estate sectors, both the UK and US experienced a negative return in 2020. The performance was different in sectors such as the consumer discretionary and IT sectors. We have seen a few ‘mega-caps’ deliver significant returns.

So, if we did see similar sector performance in 2020, is that reflective of the longer term picture. Winton1 considered this in a study comparing the returns of different companies in different markets to understand if these were more correlated to the country or the sector. The results were mixed; energy and IT had a greater correlation to the sector, whereas financials, consumer discretionary, and industrials were more dependent on the country.

How does this impact the UK market?

Does this underperformance in 2020 make the UK market more attractive? At a high level you would think this, as the UK has more stocks which were impacted by the pandemic than the US, but it is worth looking a little deeper at the valuations of individual sectors.

If we look at valuations using historic earnings of companies, it is difficult to see any trend or correlation across markets. However, when we consider their future earnings, looking at the average of each sector, then there appears to be a closer relationship across the different markets.

We can consider the valuations of individual sectors across different regions using the forward price to earning basis (a valuation metric used to normalise stock prices by dividing them by their earnings, P/E). When looking at these valuations, there is a fair degree of similarity across different sectors in different regions. There are some differences in the sector valuations, where we have high valuations in some of the ‘mega cap’ stocks, e.g. in consumer discretionary companies such as Tesla, Amazon and Nike, and in communication services companies such as Disney and Netflix.

What this tells us is that investors are likely to be looking at opportunities across different markets and valuing these on a similar basis. The overall UK market valuation may be below global counterparts, but there is some similarity in the company valuations.

Whilst we are using this one method to try and compare valuations across the various markets, we acknowledge that these valuations may not tell us much about the future returns of individual companies.

What is the case for the UK market?

Should we buy the UK market, post-Covid and Brexit? To consider this, we look at the returns from global sectors, and how they have reacted to news about Covid in Q1 2020 when the outbreak started and in Q4 when the vaccine news broke.

There is a trend between the losers in Q1 and winners in Q4. We also know that the UK market has a higher weighting to those sectors (specifically financials, energy and materials).

If we do see a return to normality this year, the UK market may proportionately benefit from a recovery in these sectors. But the question is: if we are seeing similar expectations in valuations of sectors, will the UK companies benefit more than other global companies in the same sector?


The sector make-up of markets was one of the key drivers of performance in 2020. Investors should consider these very different sector exposures when taking a view on markets. Investors look globally for opportunities, so companies could be assessed in comparison to other large multinational companies in the same sector.

Appendix: Discrete MSCI World sector performance (GBP)

  2016 2017 2018 2019 2020
Communication Services 26.0 -3.3 -4.4 22.5 19.2
Consumer Discretionary 23.0 13.0 0.4 21.7 32.4
Consumer Staples 21.2 6.9 -4.5 18.1 4.5
Energy 51.0 -4.1 -10.6 7.1 -33.6
Financials 34.2 12.1 -11.8 20.7 -5.8
Health Care 11.2 9.4 8.9 18.5 10.0
Industrials 34.6 14.4 -9.2 22.8 8.2
IT 32.9 26.3 3.5 41.9 39.3
Materials 46.1 17.8 -11.8 18.6 16.2
Real Estate - 4.7 -0.5 18.2 -7.9
Utilities 26.4 3.8 8.3 17.8 1.5

Source: FactSet, Barclays

Past performance is not a reliable guide to future performance.

Where to invest

We believe that the best way to achieve your long-term investment goals is to have a diversified portfolio. To help you we’ve created our Funds List – it’s made up of funds we like from the sectors we believe are key to building a diversified portfolio. Within each sector, there’s a mix of investment focus and investment approaches to choose from. So why not take a look at our selection?

To diversify your investment, you may like to consider our own Barclays Ready-made Investments (RMI). The RMI are just one example of a range of diversified funds which allow you to select the level of risk you are most comfortable with. These multi-asset funds invest in passive funds across a range of asset classes and regions, offering a globally diversified one-stop solution for investors. Ready-made Investments are not the only funds that we offer and they won’t be appropriate for everyone.

These are our current opinions but the future, as ever, is uncertain and outcomes may differ. Past performance of the fund and its manager are not a reliable indicator of their future performance.

We don’t offer personal investment advice so if you’re unsure you should seek that independently. 

Funds are designed for the long term so you should only consider them if you can stay invested for at least five years.

Plan & Invest is a new service which creates and manages a personalised Investment Plan just for you. Whether your long-term goal is your child’s university education, retirement or just building a nest egg, all you have to do is tell us a bit about yourself and then, if your application is successful and you’re ready to invest, let our experts select and manage your investments (minimum investment is £5000).

Read the Assessment of Value report [PDF, 683KB] for funds run by Barclays.

Barclays investment updates

Register to receive updates on the latest news and insights from our experts plus, information on all things Smart Investor and Plan & Invest.

You may also be interested in

The value of investments can fall as well as rise. You may get back less than you invest. Tax rules can change and their effects on you will depend on your individual circumstances.

Investment Account

A fully flexible way to invest

A flexible, straightforward account with no limits on the amount you can invest.


Investment ISA

An easy way to start investing

We offer two ways to invest using an Investment ISA (also known as a stocks and shares ISA). Choose your own investments with Smart Investor, or let us make the decisions for you with Plan & Invest. Either way, invest up to £20,000 per year and any returns you make are tax-free2.

Start investing to make the most of those special times to come by using your new 2021-22 ISA allowance in an Investment ISA today. The sooner you begin, the sooner you could grow your money, tax efficiently.


Plan & Invest

Our experts will manage your investments for you. We will develop a personalised Investment Plan tailored to you but our experts then make all the buy and sell decisions. Invest from £5,000 in cash and/or an ISA transfer3 today.