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S&P 500 sectors by size

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The S&P 500 is the most widely used index for the US equity market as it measures the stock performance of the 500 largest companies by market capitalization listed on stock exchanges in the United States.

S&P Dow Jones Indices

The S&P 500 index is segmented by eleven sectors, from information technology to energy. The stock performance of the industries measures the performance of each sector.

Figure 1 below shows the S&P 500 sectors and industries by size as of July 31, 2020.

Figure 1. S&P 500 Sectors by size as of July 31, 2020. Source: S&P Global.

Most investors, academics, and asset managers use the S&P 500 index as their main benchmark to measure an investment portfolio’s performance. S&P 500 index is commonly referred to as “the market.” S&P 500 index, in general, produces an average 10% annual rate of return. An investor or asset manager is considered successful when they can outperform the S&P 500 index consistently for a long time.

Warren Buffet’s Berkshire Hathaway has outperformed the S&P 500 index for a long period of time and made him the most successful investor of all time. Berkshire Hathaway was started as a struggling textile manufacturer. But after wide diversification with a 20% annual return for more than 66 years, Berkshire Hathaway has a market capitalization of $534.36 billion and a stock price of $341,754 per share today [1].

Therefore, It is crucial to understand the full breakdown of the S&P 500 index and how does it relate to investment strategy, the overall economic performance of the country, and the global markets.

Disruption by technology innovation

The size of sectors and industries of the S&P 500 vary year-over-year due to macroeconomics and microeconomics factors, disruption, technology innovation, demography, consumer behavior, environment, and geopolitics.

The energy sector was the largest component of the S&P 500 index a decade ago when ExxonMobil was the world’s largest company by market capitalization. Today, energy becomes that smallest sector and ExxonMobil is no longer in the Dow Jones Industrial Average index due to climate change, disruption, as well as innovation in renewable energy and electric vehicle.

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On the other hand, information technology was a small sector in the S&P 500 index almost 10 years ago. Still, it becomes the largest sector today due to the explosion of technological innovation, semiconductors’ evolution, and the internet’s growth.

The disruptive innovation shifts the “brick-and-mortar” sectors such as industry, materials, real estate, and energy from the top to the bottom of the S&P 500 index. The technology revolution 4.0 brings sectors and industries that fuel the “digital economy,” like information technology and communication services, to the top of the list.

Deep dive: The S&P 500 sectors and industry by size

The performance of the S&P 500 index is measured by the performance of the sectors and the industries. The companies that make up the S&P 500 index is constantly reviewed, removed, and added based on their financial performance. Below is the complete breakdown of the S&P 500 by size as of July 31, 2020.

#1 Information technology

The information technology sector covers hardware, software, data processing, and, IT consulting, excluding internet services and home entertainment.

SectorIndustry% of Sector
Information Technology (27.48%)Technology Hardware, Storage & Peripherals24.29%
Systems Software24.00%
Data Processing & Outsourced Services15.67%
Application Software8.79%
IT Consulting & Other Services4.27%
Communications Equipment3.42%
Semiconductor Equipment1.95%
Electronic Components0.74%
Internet Services & Infrastructure0.54%
Electronic Equipment & Instruments0.53%
Electronic Manufacturing Services0.48%
Technology Distributors0.22%
As of July 31, 2020. Source: S&P Global.

#2 Health care

The health care sector covers health care equipment, supplies, technology, and services, as well as pharmaceuticals and biotechnology companies excluding health care insurance.

SectorIndustry% of Sector
Health Care (14.58%)Pharmaceuticals29.08%
Health Care Equipment25.73%
Managed Health Care11.30%
Life Sciences Tools & Services8.56%
Health Care Services4.80%
Health Care Distributors1.65%
Health Care Supplies1.64%
Health Care Facilities1.06%
Health Care Technology0.54%
As of July 31, 2020. Source: S&P Global.

#3 Consumer discretionary

The consumer discretionary sector covers businesses that are sensitive to economic cycles such as luxury goods, apparel, footwear, automobile, leisure equipment, restaurants, hotels, and vacations.

SectorIndustry% of Sector
Consumer Discretionary (11.18%)Internet & Direct Marketing Retail47.65%
Home Improvement Retail13.16%
General Merchandise Stores4.40%
Apparel Retail3.39%
Automotive Retail2.97%
Hotels, Resorts & Cruise Lines2.05%
Automobile Manufacturers1.89%
Specialty Stores1.36%
Apparel, Accessories & Luxury Goods1.27%
Casinos & Gaming0.98%
Auto Parts & Equipment0.94%
Computer & Electronics Retail0.75%
Consumer Electronics0.47%
Household Appliances0.34%
Home Furnishings0.33%
Leisure Products0.31%
Housewares & Specialties0.21%
Department Stores0.10%
Specialized Consumer Services0.09%
As of July 31, 2020. Source: S&P Global.

#4 Communication services

The communication services sector covers companies that provide news, advertising, social media delivered through the internet and broadband. The sector also includes providers of internet, wireless networks, cable, landlines, and broadband.

SectorIndustry% of Sector
Communication Services (10.90%)Interactive Media & Services51.52%
Integrated Telecommunication Services15.22%
Movies & Entertainment14.69%
Cable & Satellite9.86%
Interactive Home Entertainment4.18%
Wireless Telecommunication Services2.12%
Alternative Carriers0.32%
Publishing & Printing0.22%
As of July 31, 2020. Source: S&P Global.

#5 Financials

The financial sector includes commercial banks, investment banks, asset management, hedge funds, financial exchanges, brokerage services, and an insurance brokerage and underwriter of property casualties, health, re-insurance, and others.

SectorIndustry% of Sector
Financials (9.89%)Diversified Banks27.43%
Multi-Sector Holdings14.23%
Financial Exchanges & Data11.91%
Asset Management & Custody Banks8.08%
Regional Banks7.91%
Property & Casualty Insurance7.41%
Investment Banking & Brokerage6.63%
Insurance Brokers5.77%
Consumer Finance4.40%
Life & Health Insurance4.08%
Multi-line Insurance1.84%
As of July 31, 2020. Source: S&P Global.

#6 Industrials

The industrials sector includes aerospace, defense, engineering, and electrical equipment manufacturers, building products, machinery, heavy equipment, construction equipment, and farm equipment.

SectorIndustry% of Sector
Industrials (7.90%)Aerospace & Defense20.41%
Industrial Conglomerates13.56%
Industrial Machinery10.12%
Air Freight & Logistics7.85%
Construction Machinery & Heavy Trucks6.61%
Electrical Components & Equipment5.66%
Building Products5.57%
Research & Consulting Services4.11%
Environmental & Facilities Services3.20%
Agricultural & Farm Machinery2.58%
Trading Companies & Distributors2.48%
Diversified Support Services2.09%
Construction & Engineering0.78%
Human Resource & Employment Services0.27%
As of July 31, 2020. Source: S&P Global.

#7 Consumer staples

The consumer staples cover businesses that meet basic needs and less sensitive to economic cycles. The sector includes food, beverages, tobacco, non-durable household goods, personal products.

SectorIndustry% of Sector
Consumer Staples (7.05%)Household Products26.00%
Soft Drinks21.13%
HyperMarkets & Super Centers17.15%
Packaged Foods & Meats14.79%
Personal Products2.39%
Distillers & Vintners2.23%
Drug Retail1.57%
Food Retail1.43%
Food Distributors1.41%
Agricultural Products1.25%
As of July 31, 2020. Source: S&P Global.

#8 Utilities

The utility sector includes power, electricity, water, and gas producers, distributors, and retailers. The sector also includes independent power producers and renewables.

SectorIndustry% of Sector
Utilities (3.13%)Electric Utilities62.41%
Water Utilities3.15%
Gas Utilities1.53%
Independent Power Producers,
Energy Traders, and Renewable
As of July 31, 2020. Source: S&P Global.

#9 Real estate

The real estate sector includes companies that manage and develop residential buildings, office space, shopping malls, hotels, resorts, retail stores. The sector excludes mortgage REITs.

SectorIndustry% of Sector
Real Estate (2.80%)Specialized REITs53.48%
Industrial REITs12.24%
Residential REITs11.20%
Retail REITs7.51%
Health Care REITs6.78%
Office REITs5.85%
Real Estate Services1.94%
Hotel & Resort REITs1.00%
As of July 31, 2020. Source: S&P Global.

#10 Materials

The materials sector includes manufacturing companies for chemicals, paper, glass, metals, steel, minerals, and forest products. The sector covers mining companies.

SectorIndustry% of Sector
Materials (2.56%)Specialty Chemicals28.45%
Industrial Gases27.73%
Paper Packaging8.80%
Commodity Chemicals6.71%
Fertilizers & Agricultural Chemicals6.71%
Construction Materials4.11%
Metal & Glass Containers3.47%
Diversified Chemicals1.46%
As of July 31, 2020. Source: S&P Global.

#11 Energy

The energy sector covers oil and gas companies that include exploration, production, refining, marketing, distribution, and storage of petroleum, coal, and consumable fuels.

SectorIndustry% of Sector
Energy (2.53%)Integrated Oil & Gas50.88%
Oil & Gas Exploration & Production20.30%
Oil & Gas Refining & Marketing11.51%
Oil & Gas Storage & Transportation9.18%
Oil & Gas Equipment & Services8.13%
As of July 31, 2020. Source: S&P Global.

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Written by Leonardo Hadi, P.Eng.,MBA
Quantitative hedge fund investor and Professional Engineer, holding an MBA from the University of Illinois at Urbana-Champaign Profile

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