Industry Segmentation

What is Industry Segmentation?

An industry segment is a combination of industries within a fund or portfolio, usually expressed as a percentage of the portfolio. Sector names may vary depending on the fund’s investment criteria and overall objectives.

key takeaways

  • The sectoral breakdown of the portfolio shows how much asset weight is allocated to which industry sectors.
  • Sectors are generally considered broad categories such as manufacturing, finance or technology. Within each sector, many sub-sectors and industries can be further divided.
  • A diversified portfolio should not have too many investments concentrated in one sector or group of related sectors.

Learn about industry segments

Industry breakdowns are provided for fund analysis, which can help investors observe a fund’s investment allocation. Industry investment may be an important factor affecting fund investment. Funds may target specific industries, seek to diversify across industries, or typically have industry differences that result from investing in a broad range of sectors. Industry funds allocate 100% to specific industries.

Some funds may restrict sector investments. Therefore, fund managers use fund analysis to exclude specific investments. This typically occurs in funds with an Environmental, Social and Governance (ESG) focus. These funds try to exclude industries or companies that investors deem undesirable for a variety of reasons. This might include an industry group, such as a tobacco producer in one fund, or an oil explorer in another fund.

Fund houses regularly provide industry reports in their marketing materials. The sector breakdown provides a representation of the sectoral allocation of fund assets, usually on a monthly or quarterly basis. Some funds may even report industry breakdowns on the fund’s website on a daily basis.

GICS Department

Sectors are generally considered to be a broad classification. Within each sector, many sub-sectors and industries can be further divided. The Global Industry Classification Standard, also known as GICS, is the primary financial industry standard that defines industry classifications.

Global industry classification standards are developed by index providers MSCI and S&P Dow Jones Indices. Its hierarchy starts with 11 industries and can be further divided into 24 industry groups, 69 industries and 158 sub-industries. It follows a coding system that assigns each grouped code to each company publicly traded in the market. The GICS coding system is integrated across the industry, allowing detailed reporting and stock screening by financial technology.

The 11 broad GICS industries commonly used for industry segment reports include:

  • vitality
  • Material
  • industry
  • consumer discretionary
  • consumer staples
  • health care
  • finance
  • information Technology
  • Telecom service
  • utility
  • real estate

Diversity and Departments

A diversified stock portfolio will hold most, if not all, GICS industry stocks. Diversification across equity sectors helps mitigate idiosyncratic or unsystematic risks arising from factors affecting a particular industry or companies within an industry.

Investors seeking to invest in the growth prospects of individual industries can also use industry indices. The investment firm offers passive index funds designed to replicate each of the 11 GICS sectors. The Vanguard Information Technology Index Fund is an example of a passively managed mutual fund designed to replicate the holdings of the MSCI U.S. Investable Market Information Technology Index. Investors can also access the strategy through the Vanguard Information Technology ETF, an exchange-traded fund.

What is a good industry segment for a portfolio?

A diversified portfolio should have access to as many industries as possible without concentrating too much money in any one industry or related industries. You may also want to apply the 5% rule to sector funds. For example, if you want to diversify into specialty areas such as biotechnology, commercial real estate, or gold mining, you only need to keep your allocation to each area at 5% or less.

What are the main industries?

These range from utilities to consumer staples to technology. The 11 industry sectors recognized by GICS are listed above. GICS breaks it down into 24 industry groups, such as automotive, banking, and apparel companies.

What are the industry segments of the S&P 500?

As of January 31, 2022, the industry breakdown of the S&P 500 was:

  • Information Technology – 28.7%
  • Healthcare – 13.1%
  • Consumer Discretionary – 12%
  • Finance – 11.3%
  • Communication Services – 10%
  • Industry – 7.8%
  • Consumer Staples – 6.1%
  • Energy – 3.4%
  • Real estate – 2.7%
  • Material – 2.5%
  • Utilities – 2.5%
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