GLOBAL – Companies and sectors that count among the best performing stocks one year are likely to underperform the following January, according to Morgan Stanley.
The company said this supposed 'January effect' had proven accurate since January 2010 and also applied in reverse, with the worst performing sector over the previous four years becoming the best performer the following January.
According to the research paper authored by Krupa Patel, European equity strategist at the firm, the situation of the best performers becoming the "biggest laggards" has so far held true.
The paper said: "At a stock level, data from our quants team confirms that the best performing stocks of the prior year have underperformed the worst performers in January every year since 2010."
The research said January 2012 saw stocks in the top quintile underperform those in the bottom quintile by 12%.
"Over the long and short term, cyclicals generally outperform defensives during the early months of a new year," the research continued.
"Materials is the only cyclical sector to have underperformed so far in 2012 and hence could be a key beneficiary of the 'January' effect in 2013."
It said the company was overweight minerals, placing particular emphasis on mining stocks.