Why sectors exist
Sectors are a way to sort thousands of companies into groups by the kind of business they do. Standard systems such as the Global Industry Classification Standard (GICS) divide the market into 11 sectors. Knowing the sector tells you what drives a company: oil prices for energy, interest rates for banks, consumer spending for retailers.
The eleven sectors
Tap through for live prices of the stocks we track in each:
- Technology: software, hardware and semiconductors.
- Communication Services: media, entertainment and internet platforms.
- Consumer Cyclical: retail, autos, restaurants and travel (called Consumer Discretionary in some systems).
- Consumer Defensive: food, household goods and groceries (Consumer Staples).
- Financials: banks, insurers and payment companies.
- Healthcare: drugmakers, insurers and medical devices.
- Energy: oil, gas and related services.
- Industrials: aerospace, machinery and transportation.
- Utilities: electricity, gas and water.
- Materials: chemicals, metals and mining.
- Real Estate: property owners, mostly real estate investment trusts (REITs).
Cyclical vs defensive
Cyclical sectors, such as consumer discretionary, industrials, materials and energy, tend to do best when the economy is strong because people and businesses spend more. Defensive sectors, such as consumer staples, healthcare and utilities, sell things people need regardless of the economy, so they are usually steadier but may lag in booms. Again, these are tendencies rather than guarantees.
Sector concentration
Market-cap-weighted indexes can be heavily weighted to a few sectors. If technology becomes a big share of the S&P 500, an index fund holder owns a lot of technology without choosing to. Checking the sector mix of what you own helps you see risks that a fund’s name does not show. See diversification.