What Is a Sector Breakdown?
A sector breakdown is the mix ofindustry sectors, like technology or healthcare,held by a fund or portfolio, typically expressed as a 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 are broad classifications such as consumer staples, healthcare, or technology.
- A well-diversified portfolio includes investments in multiple sectors.
A sector breakdown can help an investor observe the investment allocations of a fund. Fund companies regularly provide sector reporting in their marketing materials. Sector investing can influence investments in the fund. A fund may target a specific sector such as technology, or seek to diversify among many sectors.
Some funds may have restraints on sector investments. This may occur with environmental, social, and governance (ESG) focused funds. These funds seek to exclude industries or companies that their investors consider undesirable for various reasons such as tobacco producers or oil exploration companies.
A sector fund allocates 100% to a specified sector, such as healthcare, technology, or energy.
GICS
The Global Industry Classification Standard, also known as GICS, is the primary financial industry standard for defining sector classifications. GICS was developed by index providers MSCI and the S&P Dow Jones. Its hierarchy begins with 11 sectors which can be further delineated to 25 industry groups, 74 industries, and 163 sub-industries. It follows a coding system that assigns a code from each grouping to every company publicly traded in the market.
11 Sectors
The eleven sectors defined by GICS include:
- Energy
- Materials
- Industrials
- Consumer Discretionary
- Consumer Staples
- Health Care
- Financials
- Information Technology
- Telecommunication Services
- Utilities
- Real Estate
Diversification
A diversified stock portfolio will holdstocksacross most 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 be used by investors seeking 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 replicates the holdings of the MSCI U.S. Investable Market Information Technology Index.
What Is the Five Percent Rule?
A well-diversified portfolio includes as many sectors as possible and does not concentrate too many funds into a single sector or related sectors. Investors can employ the five percent rule with sector funds. To diversify within specialty sectors, such as biotech, commercial real estate, or gold miners, investors keep their allocation to 5% or less for each.
What Industries Are Included in the Energy Sector?
The Energy Sector includes companies that target oil, gas, coal, and consumable fuels through exploration and production, refining and marketing, and storage and transportation. The sector also includes companies that offer oil and gas equipment and services.
How Are Companies Classified Under GICS?
Every company is assigned a GICS classification at the sub-industry level
according to its primary business activity. MSCI and S&P Dow Jones Indices use revenues and earnings to determine a company's principal business.
The Bottom Line
Sectors are broad classifications such as consumer staples, healthcare, or technology. The Global Industry Classification Standard is the primary financial industry standard for defining sector classifications. The sector breakdown of a portfolio shows how much asset weights are allocated to what industry sectors and are commonly expressed as a percentage.
FAQs
A sector breakdown is the mix of industry sectors, like technology or healthcare, held by a fund or portfolio, typically expressed as a percentage. Sector designations can vary depending on the fund's investment criteria and overall objective.
What is sector breakdown? ›
A sector breakdown is the mix of sectors within a fund or portfolio, expressed as a portfolio percentage. Sector designations can vary depending on the fund's investment criteria and overall objective.
What is the purpose of a sector analysis? ›
Sector analysis is an assessment of the economic and financial condition and prospects of a given sector of the economy. Sector analysis serves to provide an investor with a judgment about how well companies in the sector are expected to perform.
What are the 11 industry sectors? ›
The order of the 11 sectors based on size is as follows: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.
How to understand a sector? ›
A sector is made up of similar businesses. Sectors may be further divided into sub-sectors or industries. To understand specific sectors, one needs to understand their value chain.
What do sectors do? ›
A sector is an area of the economy in which businesses share the same or related business activity, product, or service. Sectors represent a large grouping of companies with similar business activities, such as the extraction of natural resources and agriculture.
What does breakdown mean in stock market? ›
What Is a Breakdown? A breakdown is a downward move in a security's price, usually through an identified level of support, that portends further declines. A breakdown commonly occurs on heavy volume and the subsequent move lower tends to be quick in duration and severe in magnitude.
What is the summary of an industry or sector? ›
An industry – or sector – is the whole of all economic activities by companies, people, and organizations involved in the production of goods and services for a particular field. Industries are usually categorized by the goods and services they produce.
Is sector industry analysis valuable? ›
Industry analysis, as a form of market assessment, is crucial because it helps a business understand market conditions. It helps them forecast demand and supply and, consequently, financial returns from the business.
What are the 5 types of sectors? ›
There are five main economic sectors.
- Primary Sector - raw materials.
- Secondary Sector - manufacturing.
- Tertiary Sector - services.
- Quaternary Sector - knowledge.
- Quinary Sector - an extension of the tertiary/quaternary sector.
Sectors and industries
At the top level, they are often classified according to the three-sector theory into sectors: primary (extraction and agriculture), secondary (manufacturing), and tertiary (services). Some authors add quaternary (knowledge) or even quinary (culture and research) sectors.
What are the three sectors with examples? ›
The 3 main sectors of the economy are primary, secondary and tertiary sectors. Manufacturing comes under the secondary sector, extraction of raw materials industries comes under the primary sector of the economy and the services industry comes in the tertiary sector of the economy.
What is a sector in simple terms? ›
a distinct part, especially of society or of a nation's economy: the housing sector; the educational sector. a section or zone, as of a city.
What is sector example? ›
Sector Examples
The economy's basic materials sector includes companies that deal with the exploration, processing, and selling of basic materials such as gold, silver, or aluminum. These materials are then used by other sectors of the economy. This is a primary sector. Transportation is another sector of the economy.
What is the difference between a market and a sector? ›
Sectors and industries develop out of markets. In this analogy, a sector would be a planet and industries would be moons. A market is a group of people who demand a good or service.
What are the 4 sectors of industry explained? ›
Primary Sector - raw materials. Secondary Sector - manufacturing. Tertiary Sector - services. Quaternary Sector - knowledge.
What is 4 sectors? ›
The 4 different sectors of the economy are primary sector, secondary sector, tertiary sector and quaternary sector. The quaternary sector of the economy is based upon the economic activity that is associated with either the intellectual or knowledge-based economy.
What does breakdown of assets mean? ›
An asset class breakdown represents the distribution of assets in a portfolio. Breakdowns are calculated by dividing the market value of a particular asset class's holdings by the fund's total assets.
What is the breakdown of the service industry? ›
Service industry types can be broken up into a handful of different sectors. Service industry types could include consumer services, public services, and business services. Other service industry types might be broken up further into retail services, economic services, administrative services, or public utilities.
