Show of hands… how many of you knew that Amazon was in the Consumer Cyclical sector? Or what about Equifax being in the Industrials sector? And a little closer to home—that Broadridge Financial Services is in the Technology sector, not Financials?
What do these companies have in common? They are in all in the S&P 500 index, arguable the most heavily used, referenced, and watched index among retail investors—which in turn means arguably the most relevant index for advisors and money managers.
But how well do you know the S&P 500?
Among the companies that make up the S&P 500 index, every underlying market sector is represented. And as we all know, each sector (and the stocks within) tends to perform differently, depending on business cycle, economic policies, and even valuations.
That’s why we think a deep understanding of the S&P 500 Index’s sector composition is important—particularly as clients continue to use it as a general benchmark for the market, and for better or worse, their own portfolios.
Explore the breakdown below:
S&P 500 Sector Composition By Company Categorization
This chart shows the S&P 500 index’s sector composition by total number of companies in each segment. Technology and Industrials lead the way, closely followed by Healthcare and Financials, with a relatively even split among the remaining sectors.
Source: Fidelity, data as of 3/1/21
S&P 500 Sector Composition By Market Capitalization
While the S&P 500 Index’s sector composition by company totals is relatively uniform, a look at market capitalizations within each category tells a different story.
As shown in the chart below, two sectors punch well above their weight in terms of market capitalization—Technology and Telecommunications (a close neighbor to Technology). Though Healthcare, Financials, and Industrials boast a similar number of companies as Technology, it’s clear to see that these sectors are much less influential in terms of overall index performance.
Source: Fidelity, data as of 3/1/21
Ebbs and flows in the S&P 500 Index’s sector composition are inevitable, which makes keeping a constant pulse on the changes important for client conversations.
The current dominance of Technology (a sector with higher relative volatility than the broader market) can create misalignments in clients’ portfolio return expectations. While we don’t recommend justifying portfolio underperformance, being aware of the dynamics that drive benchmark performance can be beneficial in client conversations.
For example, in the second half of 2020 Technology well outpaced the market. Portfolios benchmarked against the S&P 500 likely were perceived as underperforming. In this scenario, being prepared to discuss the drivers of this performance and the suitability (or un-suitability) of similar allocations within your clients’ portfolios can go a long way in terms of confidence and trust.
Detailed Breakdown—S&P 500 Sectors, Industries, and Underlying Companies
The general sector composition of the S&P 500 Index is important, but equally important is the makeup of each individual sectors. See below an interactive breakdown of the industries and companies within each sector:
The Consumer Cyclical sector represents companies that are sensitive to economic cycles.
Underlying Industries:
Auto Components | Automobiles | Distributors | Diversified Consumer Services | Hotels, Restaurants, and Leisure | Household Durables | Internet and Direct Marketing Retail | Leisure Products | Multiline Retail | Specialty Retail | Textiles, Apparel, and Luxury Goods
Underlying Companies:
The Consumer Defensive sector represents companies whose demand is insulated from economic cycles.
Underlying Industries:
Beverages | Food and Staples Retailing | Food Products | Household Products | Personal Products | Tobacco
Underlying Companies:
The Energy sector represents companies involved in the exploration, extraction, refinement, and marketing of oil, gas, and other fuels.
Underlying Industries:
Energy Equipment and Services | Oil, Gas, and Consumable Fuels
Underlying Companies:
The Financials sector represents companies involved in lending, asset management, and insurance activities.
Underlying Industries:
Banks | Capital Markets | Consumer Finance | Diversified Financial Services | Insurance | Mortgage REITs | Thrifts and Mortgage Finance
Underlying Companies:
The Healthcare sector represents companies involved in healthcare provision, management, and research.
Underlying Industries:
Biotechnology | Healthcare Equipment and Supplies | Healthcare Providers and Services | Healthcare Technology | Life Sciences Tools and Services | Pharmaceuticals
Underlying Companies:
The Industrials sector represents companies involved in a broad spectrum of manufacturing disciplines, as well as shipping and transportation.
Underlying Industries:
Aerospace and Defense | Air Freight and Logistics | Airlines | Building Products | Commercial Services and Supplies | Construction and Engineering | Electrical Equipment | Industrial Conglomerates | Machinery | Marine | Professional Services | Road and Rail | Trading Companies and Distributors | Transportation Infrastructure
Underlying Companies:
The Materials sector represents companies involved in the manufacture of raw materials, as well as commodities exploration and processing.
Underlying Industries:
Chemicals | Construction Materials | Containers and Packaging | Metals and Mining | Paper and Forest Products
Underlying Companies
The Real Estate sector represents mortgage companies, property management companies, and Real Estate Investment Trusts (REITs).
Underlying Sectors:
Equity REITs | Real Estate Management and Development
Underlying Companies:
The Technology sector represents companies involved in the design, development, and support of computer systems and applications, including equipment manufacturing, data services, and technology consulting firms.
Underlying Industries:
Communications Equipment | Electronic Equipment, Instrumentals, and Components | IT Services | Semiconductors and Semiconductor Equipment | Software | Technology Hardware, Storage, and Peripherals
Underlying Companies:
The Telecommunications sector represents companies that provide communication services across various mediums and media types.
Underlying Industries:
Diversified Telecommunication Services | Entertainment | Interactive Media and Services | Media | Wireless Telecommunication Services
Underlying Companies:
The Utilities sector represents companies that deliver and manage electric, gas, and water service.
Underlying Industries:
Electric Utilities | Gas Utilities | Independent Power and Renewable Electricity Producers | Multi-Utilities | Water Utilities
Underlying Companies:
As a fundamentally-rooted investment strategist with a disciplined sector valuation and market pricing process, it’s no surprise that we geek out over this sort of thing. And while we don’t expect every advisor or investor to monitor sectors as closely as we do, as an investment strategist with a dedicated focus on market pricing and sector valuation/rotation we feel it’s important to keep a pulse on the sectors that contribute to the performance of popular indices—as well as the companies within those sectors.
We hope you’ve found the S&P 500 sector breakdown interesting and insightful, and that this information will support richer client conversations and more confident investment decisions.
As always, if you have any questions about this information, we encourage you to reach out to our National Sales Manager, Aaron Ploscowe at 614-726-3627 or engage@aamamail.com. We’d love to discuss sector valuation, your portfolios, or how we might be able to help you support clients through fundamental investment strategies.
The information and opinions in this report have been prepared by the investment staff of Advanced Asset Management Advisors (AAMA). This report is based upon information available to the public. The information herein is believed to be reliable and has been obtained from sources believed to be reliable, but AAMA makes no representation as to the accuracy or completeness of such information. Opinions, estimates and projections in this report constitute AAMA’s judgment and are subject to change without notice. This report is provided for informational purposes only. It is not to be construed as a recommendation to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction in which such an offer or solicitation would violate applicable laws or regulations.
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