A #sector breakdown is the mix of sectors within a fund or portfolio, typically expressed as a portfolio percentage. Sector designations can vary depending on the fund’s investment criteria and overall objective.

KEY TAKEAWAYS

The sector breakdown of a portfolio shows how much asset weights are allocated to what industry sectors.

Sectors typically are considered to be broad classifications such as manufacturing, financial, or technology. Within each sector, numerous sub-sectors and industries can be further delineated.

A well-diversified portfolio should not have too many investments concentrated in a single sector or group of related sectors.

  

Understanding Sector Breakdown

A sector #breakdown is provided for fund analysis and can help an investor to observe the investment allocations of a fund. Sector investing can be a significant factor in influencing investments in the fund. A fund may target a specific sector, seek to diversify among sectors, or generally have sector variance that results from investing from a broad universe. A sector fundwould have an allocation of 100% to a specified sector.

Some funds may have restraints on sector investments. Therefore fund analysis is used by fund managers to exclude specific investments. This often occurs with environmental, social, and governance (ESG) focused funds. These funds seek to exclude industries or companies that their investors consider undesirable for various reasons. This may include an industry grouping such as tobacco producers in one fund, or oil exploration companies in another #fund

Fund companies regularly provide sector reporting in their marketing materials. Sector breakdowns provide a representation of the sector allocations of the fund’s assets, often on a monthly or quarterly basis. Some funds may even report sector breakdowns daily on the fund’s website.

GICS Sectors

Sectors are typically considered to be a broad classification. Within each sector, numerous sub-sectors and industries can also be further delineated. The Global Industry Classification Standard also known as GICS is the primary financial industry standard for defining sector classifications.1

The Global Industry Classification Standard was developed by index providers MSCI and the S&P Dow Jones. Its hierarchy begins with 11 sectors which can be further delineated to 24 industry groups, 69 industries, and 158 sub-industries. It follows a coding system that assigns a code from each grouping to every company publicly traded in the market. The GICS coding #system is integrated throughout the industry allowing for detailed reporting and stock screening through financial technology.2

The 11 broad GICS sectors commonly used for sector breakdown reporting include the following:3

Energy

Materials

Industrials

Consumer Discretionary

Consumer Staples

Health Care

Financials

Information Technology

Telecommunication Services

Utilities

Real Estate

Diversification and Sectors

A diversified stock portfolio will hold stocks across most, if not all, GICS sectors. Diversification across stock sectors helps to mitigate idiosyncratic or unsystematic risks caused by factors affecting specific industries or companies within an industry.

Sector indexes can also be used by #investorsseeking to invest in the growth prospects of a single sector. Investment companies offer passive index funds that seek to replicate each of the eleven GICS sectors. The Vanguard Information Technology Index Fund is one example of a passively managed mutual fund that seeks to replicate the holdings of the MSCI U.S. Investable Market Information Technology Index. The strategy is also available to investors through an exchange-traded fund, the Vanguard Information Technology ETF.4

What Is a Good Sector Breakdown for a Portfolio?

A well-diversified #portfolio should have access to as many sectors as possible, and not concentrate too many funds into any single sector or related sectors. You may also want to apply the five percent rule with sector funds. For example, if you wanted to diversify within specialty sectors, such as biotech, commercial real estate, or gold miners, you simply keep your allocation to 5% or less for each.

What Are the Major Industry Sectors?

These range from utilities to consumer staples to technology. The 11 GICS-recognized industry sectors are listed above. The GICS subdivides this into 24 industry groups such as automobiles, banks, and apparel companies.5

What Is the Sector Breakdown of the S&P 500 Index?

As of Jan. 31, 2022, the sector breakdown of the S&P 500 is:6

Information technology - 28.7%

Healthcare - 13.1%

Consumer Discretionary - 12%

Financials - 11.3%

Communication Services - 10%

Industrials - 7.8%

Consumer Staples - 6.1%

Energy - 3.4%

Real Estate - 2.7%

Materials - 2.5%

Utilities - 2.5%