Sector Breakdown

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.

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 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 fund would have an allocation of 100% to a specified sector.

Some funds may have restraints on sector investments. Therefore sector analysis is used by fund managers to exclude specific investments. This often occurs with environmental, social and governance focused funds. These funds seek to exclude micro sectors like tobacco.

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.

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.

The Global Industry Classification Standard was developed by index providers MSCI and Standard and Poor’s. Its hierarchy begins with 11 sectors which can be further delineated to 24 industry groups, 68 industries and 157 sub-industries. It follows a coding system which 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.

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

• Energy
• Materials
• Industrials
• Consumer Discretionary
• Consumer Staples
• Health Care
• Financials
• Information Technology
• Telecommunication Services
• Utilities
• Real Estate

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 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 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.