Investing term
What is Sector?
An industry grouping inside the equity universe — tech, financials, healthcare, energy, consumer staples, etc.
A sector is a grouping of companies in the same broad industry — technology, financials, healthcare, energy, consumer staples, and so on. Sectors behave differently across the economic cycle: some, like technology and consumer discretionary, thrive when the economy is booming, while defensive sectors, like utilities and consumer staples, hold up better in downturns.
Spreading exposure across sectors is a key layer of diversification, because concentrating in one leaves you exposed to whatever hits that industry — a tech crash, an energy slump, a banking crisis. It's easy to become accidentally overweight a single sector, especially a hot one that has run up, or by owning several funds that all lean the same way. Watching your sector exposure, alongside your holdings and regions, helps ensure you're diversified across industries and not unknowingly betting on one.
A sector is an industry group — tech, financials, healthcare, energy, staples — each with its own cycle. Spreading across them stops one industry's troubles from dominating your portfolio.
For example
A portfolio that has drifted to 40% technology is really a bet on one industry — a tech-sector downturn would hit it far harder than a portfolio spread across sectors.
Learn it by doing
That's Sector in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 16, Portfolio Construction).
Try the free lesson →Why it matters to you
Sector diversification matters because industries rise and fall on their own drivers and cycles, so concentrating in one exposes you to that industry's specific risks. It's also an easy place to become accidentally concentrated — a hot sector swells, or overlapping funds all tilt the same way. Checking sector exposure ensures you're spread across the economy rather than unknowingly wagering on a single industry, which broad, diversified funds handle automatically.
⚠ Hidden sector concentration across funds
You can own several different funds and still be heavily concentrated in one sector, if they all hold the same big companies — many index funds are dominated by a handful of large tech names. Assuming you're diversified because you hold multiple funds, without checking their combined sector exposure, can leave you making a large, unintended bet on a single industry.