Posted in Finance, Accounting and Economics Terms, Total Reads: 400
Definition: Industry Bet
Industry Bet is an investment decision similar to an index funds. The investors or the portfolio manager increase or decrease their stakes for the entire industry. It is easier to predict the future of an entire industry rather than predicting individual stocks. The group of companies are similar in terms of primary activity.
They can be clubbed into sectors such as pharmaceutical, industrial equipment, infrastructure, airlines and others. The risk is hedged and the exposure is limited. For example the infrastructure industry. It is basically a cyclical industry and macroeconomic factors plays important role in determining the future of the industry. However to determine future potential of a particular company depends on its product portfolio and the strategic innovation of the competitor. Thus portfolio managers find it much safer to bet on an entire industry.
The degree of correlation between companies is higher as the fundamental factors driving the industry are similar in nature. Certain industries like the sin industry, pharmaceutical, discount retailing will plod along when others suffer during recession. Thus it makes sense to follow an industry and mitigate risk.