Sector Breakdown: What It Is and How It’s Used
A sector breakdown shows how a portfolio’s investments are distributed across industry sectors, usually expressed as percentages. It helps investors understand asset allocation, concentration, and diversification by indicating which parts of the economy a portfolio is exposed to (for example, technology, healthcare, or consumer staples).
Why sector breakdowns matter
- Reveal concentration risk — large weights in a single sector can expose a portfolio to sector-specific downturns.
- Guide allocation decisions — investors can tilt toward or away from sectors based on outlook or strategy.
- Support benchmarking and performance analysis — comparing sector weights to an index or peer funds clarifies drivers of returns.
- Facilitate targeted investing — sector funds and ETFs let investors gain exposure to the growth or defensive characteristics of a specific sector.
Sector investing and sector funds
- Sector funds allocate most or all of their assets to one sector (e.g., technology, healthcare, energy).
- Some funds intentionally exclude sectors for reasons such as ESG mandates (e.g., avoiding tobacco or oil).
- Investors often use sector indexes and passive index funds to track the performance of a single sector; these funds replicate the sector’s holdings and weightings.
GICS: the classification standard
The Global Industry Classification Standard (GICS), developed by MSCI and S&P Dow Jones, is the primary framework used to classify publicly traded companies into a consistent sector hierarchy. GICS organizes companies into:
11 sectors
25 industry groups
74 industries
163 sub-industries
Companies receive a GICS code based on their principal business activity, typically determined from revenues and earnings.
The 11 GICS sectors
- Energy
- Materials
- Industrials
- Consumer Discretionary
- Consumer Staples
- Health Care
- Financials
- Information Technology
- Communication Services (sometimes listed as Telecommunication Services)
- Utilities
- Real Estate
Diversification and risk management
- Holding stocks across most GICS sectors reduces unsystematic (company- or industry-specific) risk.
- Sector indexes enable concentrated exposure when an investor wants to target a single industry’s growth potential.
- “Five percent rule”: for narrow specialty allocations (e.g., biotech, gold miners, commercial real estate), many investors limit each allocation to about 5% of the portfolio to avoid excessive concentration.
Example: What’s in the Energy sector?
The Energy sector includes companies involved in:
* Exploration and production of oil, gas, coal, and other consumable fuels
Refining, marketing, storage, and transportation of fuels
Manufacturing and servicing of oil- and gas-related equipment
How companies are classified
GICS assigns each company to a sub-industry based on its primary business activity. Index providers evaluate company revenue and earnings to determine the principal line of business and the appropriate classification.
Key takeaways
- A sector breakdown quantifies how a portfolio’s assets are distributed across industry sectors and is typically shown as percentages.
- GICS provides the widely used framework for sector classification across 11 broad sectors and finer industry groupings.
- Proper sector diversification helps manage idiosyncratic risk, while sector funds and indexes provide tools for targeted exposure.