In this short paper, we provide thoughts and ideas on how to glean signals from national sector PMI data with a view to utilising these in active equity investment strategies.

Our ideas are rooted in an approach that utilises PMI data in terms of both the momentum and the relative performance of a sector. This is achieved through a combination of transformations and extensive use of PMI sub-index data.

To illustrate, we apply these ideas to a subset of our German national sector PMI data, following a simple strategy where funds are invested primarily in those sectors with the 'best' momentum. Our results are encouraging and, depending on the combination of sub-index data and weighting schemes deployed, signals from the PMI data are shown to provide a platform for generating excess returns compared to a naïve benchmark strategy.

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Purchasing Managers' Index™ (PMI™) data are compiled by IHS Markit for more than 40 economies worldwide. The monthly data are derived from surveys of senior executives at private sector companies, and are available only via subscription. The PMI dataset features a headline number, which indicates the overall health of an economy, and sub-indices, which provide insights into other key economic drivers such as GDP, inflation, exports, capacity utilization, employment and inventories. The PMI data are used by financial and corporate professionals to better understand where economies and markets are headed, and to uncover opportunities.

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