Discover the power of sector investing

Sector investing is the practice of investing in one or more sectors of the economy. There are 11 main sectors across equity markets: Energy, financials, health care, information technology, consumer discretionary, consumer staples, materials, communication services, industrials, utilities and real estate.

Sector funds are exchange-traded funds (ETFs) or mutual funds that are focused on a particular sector. As with any investment, sector funds can be risky, especially for more typically cyclical sectors such as energy or financials.

There are 11 market sectors, as generally defined. They are energy, financials, health care, information technology, consumer discretionary, consumer staples, materials, communication services, industrials, utilities and real estate.

While businesses within a sector typically share characteristics, they may also be quite different from one another. For example, the materials sector contains chemical companies as well as mining and paper product firms. The health care sector includes manufacturers of medical devices in addition to service providers such as telehealth firms.

Thematic investing is typically a longer-term investment strategy that relies on predictions of market trends or “themes.” These themes often cut across sectors.

Thematic investing differs from sector investing in that it is broader in its approach. It groups stocks according to common features regardless of sector. Thematic investing is also seen as a potential way of aligning portfolios while capitalizing on long-run trends.

A sector rotation strategy involves moving investments from one sector to another in response to changing market conditions. For example, the consumer discretionary sector is generally considered a positive investment in periods of economic growth. In contrast, the consumer staples sector, which includes essentials such as food, typically holds steady even when the economy is tightening.