Tahoe-Truckee Market Beat: Stock market sectors and industries
The stock market is broken down into different sectors of the economy. Recently, you may have heard comments like, “the drop in the price of crude oil has hurt profitability of stocks in the energy sector.”
Not too long ago I was asked how many sectors there were and if it was possible to invest in funds that focused on only one sector.
Well, the market consists of 11 separate sectors and it is possible to buy low cost sector ETFs that consist of stocks in certain sectors of the market. The 11 sectors are:
Basic Materials, this sector consists of companies involved in raw materials, like mining, chemicals and forestry products.
Communications Services, this sector is made of stocks in pay TV and the Telecommunications Industry like AT&T, Verizon and Comcast.
The Consumer Cyclical sector is composed of companies that primarily sell items that people only purchase periodically like autos, RVs, home improvements, gambling and luxury goods.
The Consumer Defensive sector is made up from stocks that produce items that people use every day like food, beverages, and personal products.
Oil and Gas stocks make up the Energy sector, and include drilling and exploration companies, refineries and equipment.
The Financial Services sector consists of banks, insurance companies, credit services and asset management.
The Health Care sector has stocks in drug manufacturing, medical devices, and long term care and biotechnology companies.
Industrials are stocks in industries like airlines, railroads, trucking, engineering and aerospace.
The Real Estate sector is where the REITs, or real estate investment trusts are found. REIT industries include hotels, offices, residential, retail and more.
The Technology sector includes semiconductors, data storage, computers, electronic components and solar. Solar is not in the Energy sector, but is a component of the Technology sector.
The final sector is Utilities, which include gas and electric companies, water companies and independent power producers.
There are many mutual funds that focus on specific sectors, both managed funds and unmanaged index funds. It is possible to buy low cost index funds that are sector specific.
One popular investment strategy is to focus on two or three of the leading sectors and rotate periodically to stay focused on the top performing sectors.
Another strategy for investors who prefer individual stocks over mutual funds is to buy the leading, dominant companies in each of the sectors and hold them instead of a broad based index fund.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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