What are stock market sectors and how can you invest?
Sectors represent the different areas of the stock market that you can invest in. Here’s a deep dive into sectors, what they are and how to invest in them.
What is a stock market sector?
A stock market sector is a segment of the economy in which different companies have similar activities, services and products. Sectors are useful because they allow us to look at different parts of an economy individually, rather than the economy as a whole.
In doing so, we can see which parts of an economy are expanding (growing) or contracting (slowing) at any given time.
Examples of sectors
Examples of sectors include information technology, healthcare or financials, but there’s an official list of 11 ‘stock market sectors’. It was produced by the Global Industry Classification Standard, and it’s the most common reference point for the different stock market sectors.
The 11 stock market sectors are:
- Communication services
- Consumer discretionary
- Consumer staples
- Energy
- Financials
- Healthcare
- Industrials
- Information technology
- Materials
- Real estate
- Utilities
What are the best-performing sectors?
In terms of historical average annual returns, there are some sectors that stand above the others. There are several reasons for this, and to properly assess them, you’ll need to get into the details of each sector in turn.
Here’s a rundown of the performance of each stock market sector over the last 10 years in the US stock market.
| Sector | 10-year performance * |
|---|---|
| Communication services | +15.33% |
| Consumer discretionary | +214.39% |
| Consumer staples | +114.66% |
| Energy | +37.48% |
| Financials | +185.62% |
| Healthcare | +241.99% |
| Industrials | +166.80% |
| Information technology | +416.22% |
| Materials | +127.56% |
| Real estate | – |
| Utilities | +96.74% |
*Source: Fidelity, retrieved 14/11/2022. Past performance is not a reliable guide of future gains.
Investing in sectors: what you need to know
To invest in sectors, you’ll need to carry out your own research into which sectors match your individual attitude to risk and potential return. And, it’s important to understand that different economic factors affect sectors in different ways.
For example, some sectors will be more ‘defensive’ than others during a recession – meaning they won’t fall as much as other sectors might, or they could even stand to gain. These sectors include consumer staples, energy and utilities – because people will always need essentials, heating and water.
You should assess each sector on an individual basis before making an investment – just so you avoid any nasty surprises down the line. Learn about the industry you want to invest in, where the big companies are based, and their main sources of revenue. These are all things to consider when looking to invest.
How to invest in sectors
A popular way to invest in entire sectors with a single investment is through tracker funds or exchange traded funds (ETFs). These funds are set up to mirror the price movements of a group of companies from a particular sector – so if you want to invest in the healthcare sector, you can buy units in a healthcare fund, like the one we offer at Moneybox.
Our range of ETFs includes thematic investment opportunities in emerging and cutting-edge sectors like cyber security, clean water and clean energy. We also have funds for tech, property and other sectors.
If you’d prefer to pick and choose exactly which companies you want to invest in, you’re in luck! Alongside our funds, we now offer a range of US stocks. We have stocks from the financial, consumer staples, communications, tech, healthcare sectors and more!
Heard of Amazon, Apple, Tesla and Microsoft? Of course you have. But, we don’t just offer these tech titans – we’ve also got Coca-Cola, JPMorgan Chase & Co, Nike, McDonald’s and more.
Our US stocks and ETFs are available exclusively to our Stocks & Shares ISA customers. Open one today to start investing in the companies you’re interested in. And, it’s worth bearing in mind before you invest, that stocks and funds have different risk profiles, but also potential return. So, while funds are usually lower risk than stocks, stocks have the potential to achieve higher returns.