Customize Consent Preferences

We use cookies to help you navigate efficiently and perform certain functions. You will find detailed information about all cookies under each consent category below.

The cookies that are categorized as "Necessary" are stored on your browser as they are essential for enabling the basic functionalities of the site. ... 

Always Active

Necessary cookies are required to enable the basic features of this site, such as providing secure log-in or adjusting your consent preferences. These cookies do not store any personally identifiable data.

No cookies to display.

Functional cookies help perform certain functionalities like sharing the content of the website on social media platforms, collecting feedback, and other third-party features.

No cookies to display.

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics such as the number of visitors, bounce rate, traffic source, etc.

No cookies to display.

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

No cookies to display.

Advertisement cookies are used to provide visitors with customized advertisements based on the pages you visited previously and to analyze the effectiveness of the ad campaigns.

No cookies to display.

Connect with us

Hi, what are you looking for?

slide 3 of 2

Sector Breakdown: What It Is and How It’s Used

File Photo: Sector Breakdown: What It Is and How It's Used
File Photo: Sector Breakdown: What It Is and How It's Used File Photo: Sector Breakdown: What It Is and How It's Used

What is a sector breakdown?

The mix of sectors within a fund or portfolio is called a sector breakdown and is usually reported as a percentage of the portfolio. Sector classifications may change based on the fund’s overarching goal and investment criteria.

Sector Investing

An investor may view a fund’s investment allocations using a sector breakdown offered for fund analysis. Sector investing may have a significant impact on investments in the fund. A fund might aim to focus on a particular industry, diversify among industries, or have a general industry variation by investing across a wide range of industries. A sector fund would allocate all of its resources to a particular sector.

There can be restrictions on sectoral investments for certain funds. Fund managers thus utilize fund analysis to exclude certain assets. Funds emphasizing environmental, social, and governance (ESG) often experience this. These funds aim to exclude businesses or sectors that their investors deem undesirable for various reasons. This might be an association of businesses, like tobacco manufacturers in one fund and oil exploration firms in another.

Sector reports are a typical feature of marketing materials from fund providers. Sector breakdowns, typically provided monthly or quarterly, show how the fund’s assets are allocated to different sectors. Certain funds could even provide daily sector summaries on their website.

GICS Domains

Generally speaking, sectors are seen as a broad grouping. Many sub-sectors and industries may also be further subdivided within each sector. The financial industry’s primary standard to define sector classifications is the Global Industry Classification Standard or GICS.

Index providers MSCI and S&P Dow Jones established the Global Industry Classification Standard. There are 69 industries, 158 sub-industries, 24 industrial groupings, and 11 sectors at the top of the hierarchy. It uses a coding scheme that gives each publicly listed firm in the market a code from each category. Financial technology enables comprehensive reporting and stock screening via the industry’s integration of the GICS coding system.

The following are the 11 broad GICS sectors often utilized for sector breakdown reporting.

  • Materials for Energy
  • Manufacturing
  • Ownership Prerogative
  • Shoppers’ Essentials
  • Medical Care
  • Money
  • Data Processing
  • Utility Services for Telecommunication
  • Sectors and Diversification in Real Estate

Most GICS sectors, if not all, will include equities in a diversified stock portfolio. Diversification across stock sectors reduces the impact of idiosyncratic or unsystematic risks brought on by circumstances that impact specific industries or businesses within industries.

Investors looking to put money into a particular industry’s growth potential may also employ sector indexes. Passive index funds that aim to mimic each of the eleven GICS sectors are available from investment businesses. One passively managed mutual fund that aims to mimic the holdings of the MSCI U.S. Investable Market Information Technology Index is the Vanguard Information Technology Index Fund. Investors may also access the strategy via the Vanguard Information Technology ETF, an exchange-traded vehicle.

What Makes a Portfolio’s Sector Breakdown Appropriate?

As many different sectors as possible should be represented in a well-diversified portfolio, which should avoid overly allocating capital to any one or a small number of linked sectors. Applying the five percent rule to sector funds would also be a good idea. You could limit your allocation to 5% or less for each specialist sector, like biotech, commercial real estate, or gold miners, if you wish to diversify within them.

Which are the principal sectors of industry?

These include technology, consumer staples, and utilities. The following list includes the 11 industrial sectors recognized by GICS. The GICS further breaks this into 24 industrial groupings, including banks, clothing firms, and automakers.5.

What Does the S&P 500 Index’s Sector Breakdown Mean?

The S&P 500’s sector split as of January 31, 2022, is as follows:

  • Technology of information: 28.7%
  • 13.1% in the healthcare sector
  • 12% is the consumer discretionary
  • Financials: 11.3%; Services for Communication: 10%
  • Industrials: 7.8%
  • 6.1% for consumer staples and 3.4% for energy
  • Property: 2.7%
  • 2.5% for Materials and 2.5% for Utilities

Conclusion

  • A portfolio’s sector breakdown shows the allocation of asset weights to different industrial sectors.
  • Generally, sectors are considered broad categories like manufacturing, finance, or technology. Many sub-sectors and industries may be further subdivided within each sector.
  • There should be a reasonable investment focused on one industry or adjacent industries in a well-diversified portfolio.

You May Also Like

Notice: The Biznob uses cookies to provide necessary website functionality, improve your experience and analyze our traffic. By using our website, you agree to our Privacy Policy and our Cookie Policy.

Ok