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

What Is a Sector Breakdown?

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.

Sector Investing

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.

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 hold stocks across 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.

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.