Industry Analysis Essay Example

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    Finance & Accounting
  • Document type:
    Research Paper
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Market Neutrality

The equity market neutral approach includes taking long and short harmonized stock positions concurrently. Therefore, an investor can make use of the relative outperformance of the long positions versus the short positions (Jaeger & Peace, 2008, p. 41). Therefore, this approach helps an investor to buy shares and sell shares with the aim of counterbalancing exposure to the stock market while seizing positive returns.

Purchasing more shares

I would go long in the IT and Technology Sector. The ICT market has recorded a positive growth trend even at times of economic crisis. The consumption rate of the smartphones, software, and personal computers experienced a 3.5% rise in the first quarter of the year 2016. The US revenue in the first three months of 2016 also increased by 0.9% as foreign demand from different consumers continued to grow.

Shipments from various experienced a more that 5% growth between the first and the second quarter of this year. The total purchase rose by 3.5%, which means that the revenue in the sector is increased. ICT services, as well as the ICT sub-sectors, have continued to expand due to the growing demand in the North America region. From the MERGENT report, the revenue in the ICT sector increased by $9.3 billion in the first quarter of 2016. The report further records that investment in ICT continued to grow despite reductions in income in other sectors such as oil production and mining. As a matter of facts, the sector was the most active in the first quarter of 2016 with a 73% rise in venture capital investment.

Currently, all other areas are turning to technology with the aim of maximizing revenue through reduced production capital. For example, the agriculture industry in America is embracing technology to improve crop and livestock management. Therefore, the IT and Technology Sector will continue to increase its revenue. Therefore, I would be willing to buy more shares in this sector.

Selling Shares

I would go short in the automobile industry. The auto industry has extensive exposure to many risk factors. For example, currently, there is increased demand for sustainable vehicles in the Northern America region. The change in taste and preference of the consumer means that the sector must reinvest in electrical vehicles, a venture that might take the time to be well established. Higher revenue taxes on exported vehicles further reduces the margin of income of the sector. The alternative solution is building production units in foreign countries, which might set baconk revenue trend of the industry. S&P Global report indicates the yearly income decreased consistently and remained at 7.9% in the second quarter of the year 2016, which was a drop of 2.0% from the previous quarter.

In their prediction, S&P Global report shows a constant earning per share growth between 2011 and 2017. As a matter of facts, the future of this sector is not promising. Therefore, I would be willing to reduce my shares in this area and increase my shares in the ITC sector.

Work Cited

Jaeger, L., & Peace, J. (2008). Alternative Beta Strategies and Hedge Fund Replication. Boston: John Wiley & Sons.