when looking at the bigger picture investors use macroeconomic variables such as gdp trade balances currency movements inflation interest rates and other aspects of the economy after looking at the big picture conditions around the world analysts next examine the general market conditions to identify high performing sectors industries or regions within the macroeconomy the goal is to find particular industrial sectors that are forecast to outperform the market 
based on these factors top down investors allocate investments to outperforming economic regions rather than betting on specific companies for example if economic growth in asia is better than the domestic growth in the united states an investor might shift their assets internationally by purchasing exchange traded funds etfs that track specific asian countries from this point they can drill down into specific companies to choose potentially successful ones as investments by looking last at their fundamentals top down investing can make more efficient use of an investor s time by looking at large scale economic aggregates before choosing regions or sectors and then specific companies as opposed to starting out with the entire universe of individual companies stocks however it may also miss out on a large number of potentially profitable opportunities by eliminating specific companies that outperform the general market top down vs bottom upbottom up investing is the opposite strategy to top down practitioners of the bottom up approach ignore macroeconomic factors and instead look at microeconomic factors that affect specific companies they re watching top down investing may produce a more long term strategic portfolio and favor passive indexing strategies while a bottom up approach may lead to more tactical actively managed strategies top down portfolios often consist largely of index funds that track specific regions or industrial sectors and may include commodities currencies and some individual stocks bottom up style portfolios often have a much larger share of individual stocks for example a bottom up investor chooses a company and then looks at its financial health supply demand and other factors over a specified time period although there is some debate as to whether the top down approach is better than the bottom up strategy many investors have found top down strategies useful in determining the most promising sectors in a given market top down investing exampleas an example of top down investing ubs group ag ubs hosted its 2016 ubs cio global forum in beverly hills ca to help investors navigate the economic environment at the time the forum addressed macroeconomic factors that affect markets including international government policy central bank policy international market performance and the effects of the brexit vote on the global economy the way in which ubs addressed these economic factors points to a top down investment strategy jeremy zirin a wealth manager who is part of ubs wealth management americas reflected on the benefits of top down investing at the forum consumer discretionary stocks looked attractive to zirin and his team who implemented a top down approach to identify strong consumer discretionary investments his team took into account the above macroeconomic factors and saw that consumer discretionary was insulated from international risks and was bolstered by american consumers spending power identifying this sector allowed him and his team ultimately to identify home depot hd as a good investment 