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Compare Sector Characteristics

Each sector has its own benefits, characteristics, and considerations. Before you invest, take the time to familiarize yourself with each, so you can make an informed decision.

Sector

Reasons to Consider

Consumer Discretionary

Companies in the Consumer Discretionary sector manufacture goods or provide services that people want but don’t necessarily need, such as high-definition televisions, new cars, and family vacations.

  • Performance is closely related to the health of the overall economy.
  • Tends to perform well at the beginning of a recovery, when interest rates are low, but can lag during economic slowdowns
  • Offers potential exposure to growth in high-end, luxury brands

Consumer Staples

The Consumer Staples sector consists of companies that provide goods and services that people use on a daily basis, like food, clothing, or other personal products.

  • Performance is generally less sensitive to changes in the economy; tends to be resistant to economic downturns.
  • One of the least volatile sectors, due to stable underlying demand for staple goods and services
  • Offers potential exposure to growth associated with middle-class consumption in emerging markets

Energy

The Energy sector consists of companies involved in the exploration, production, or management of energy resources such as oil, gas, and coal, as well as companies that service these industries.

  • Performance can be closely related to the price of commodities, such as crude oil and natural gas.
  • Tends to be sensitive to changes in consumer demand and the economy
  • Offers potential exposure to growth associated with innovations in drilling technology or alternative energy souces

Financials

Companies in the Financials sector are engaged in businesses such as banking and brokerage, mortgage finance, insurance, or real estate development.

  • Sensitive to changes in the economy, monetary policy (interest rates), and regulatory policy
  • Tends to perform well at the beginning of the business cycle
  • Includes real estate investment trusts (REITs), which contribute to the sector’s overall risk/return profile

Health Care

The Health Care sector includes companies engaged in the production and delivery of medicine and health care–related goods and services.

  • Stable demand can make the sector less sensitive to economic cycles.
  • Tends to perform better in the later stages of the business cycle
  • Offers potential exposure to investment themes, such as personalized medicine and the highly innovative biotechnology industry

Industrials

The Industrials sector includes companies that manufacture and distribute capital goods in support of industries such as aerospace and defense, construction and engineering, electrical equipment and heavy machinery.

  • Performance tends to be sensitive to economic cycles.
  • Tends to perform better in the early-to-middle stages of the business cycle
  • Offers potential exposure to growth associated with the global need for infrastructure replacement

Information Technology

The Information Technology sector comprises companies that are engaged in the creation, storage, and exchange of digital information.

  • Considered one of the more volatile sectors
  • Largest sector in terms of market capitalization; deep and diverse set of companies and industries
  • Offers potential exposure to growth associated with the rise of cloud computing, big data, and mobile computing

Materials

The Materials sector consists of companies that are engaged in the manufacturing or processing of chemicals and plastics, or they may harvest forests or extract metals and minerals

  • Generally more sensitive to economic cycles
  • Tends to perform well during the mid-to-late stages of the business cycle
  • Sensitive to price fluctuations in metal commodities, such as gold, copper, and steel
  • Offers exposure to investing themes, such as economic growth in emerging markets

Real Estate

The Real Estate sector consists of funds that are invested in varying combinations of common stocks, bonds, preferred stocks, securities of real estate investment trusts (REITs) and commercial mortgage backed securities (CMBS)

  • Provides growth potential, as real estate investments have produced competitive long-term returns relative to stocks and bonds
  • Offers diversification potential due to lower correlations with other major asset classes
  • Acts as a potential hedge against inflation, due to the tendency of real estate values and rents to increase when inflation is increasing

Telecommunications

Companies in the Telecommunications sector provide traditional fixed-line telephone, wireless, and data services. These companies can also be engaged in the designing, building, and servicing of communications devices and networks.

  • Offers potential exposure to growth associated with increasing wireless data and smartphone and tablet usage
  • Stable demand for telecommunications generally results in performance that is less sensitive to changes in the economy.
  • Companies in this sector tend to offer relatively high dividend yields.

Utilities

The Utilities sector includes companies that engage in the production and delivery of electric power, natural gas, water, and other utility services, such as steam and cooled air.

  • Stable demand for utilities can make this sector less sensitive to changes in the economy.
  • Can be a defensive investment during a recession or economic downturn
  • Companies in this sector are generally less volatile and pay relatively high dividend yields.

Investment decisions should be based on an individual’s own goals, time horizon, and tolerance for risk.

Past performance is no guarantee of future results.

Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Sector funds can be more volatile because of their narrow concentration in a specific industry.

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