The table below lists the historical sector weightings of S&P 500 index. Currently, the largest sector of S&P 500 index is Information Technology, followed by Health Care. The smallest are Telecommunications and Materials sectors, both contributing less than 3% for the index. Real Estate was separated from the Financials sector in 8/31/2016. Check the historical weights of the individual index companies from here.
Examine also the weightings of Russell 2000 and 3000 indices.
S&P 500 - Sector Weightings (%)
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Changes in the sector weights during the past 10 years
Between 12/31/2006 and 12/31/2016, the weighting of financial sector has decreased considerably. The global financial crisis of 2008 dropped the weight of the sector temporarily to just 11%. Financial services recovered quickly after the crisis but the sector is still much smaller compared to other sectors than it was before the crisis. Information technology sector has risen with the help of Apple, Microsoft and Alphabet from 15% to over 20%. Currently, the weight of Apple is 3.7% of the whole index. Since 2009, the weight of energy sector has halved and its currently just 6.9%. The sharp decrease in oil prices has caused big worries for energy companies. In the beginning of 1980, energy was clearly the largest sector, constituting 25% of the S&P 500. Also material companies are now just a fraction of what the sector used to be 35 years ago.
S&P 500 sector history
When S&P 500 index was created in March 1957, the index consisted of 425 industrials, 60 utilities and 15 railroad companies. In 1976, the structure was changed to 400 industrial, 40 utility, 40 financial and 20 transportation corporations. So quite surprisingly, there were no financial service corporations part of S&P 500 before the year 1976. In 1988, Standard & Poor’s finally removed the 400-40-40-20 system and since then the index committee was more free to select index constituents. But sector balance is still an important factor when selecting the companies to the index. In 2005, S&P Dow Jones changed their methodology for all US indexes to float adjusted market cap weighted index. This means that instead of full market cap, the weight of a company is adjusted based on a public float factor (IWF). This had big effect on some large companies like Wal-Mart with a lot of shares not tradable in public and the change also affected the sector weightings.
The performance of different sectors
A lot of research has been made about the performance and returns of different sectors. During 2014 the stock market was booming but the growth was halted in 2015. Between January and October 2015, majority of the sectors have been generating negative returns. From the sectors, energy companies have had the worst year, generating negative return of 13.7%. Materials sector is also down 9.2% and utility companies have lost 7.3% of their value. The only sector with any gains is consumer discretionary that is up 7.7%.
But if the performance is examined for the past five years, all the sectors have been generating positive returns. Both healthcare and consumer disc. sectors have gained over 120%. The worst sector is again energy companies whose value has increased only 18% during five years. Read more from here.
The difference between consumer staples and consumer discretionary sectors
Consumer discretionary companies are selling nonessential goods and services. The businesses include car manufacturers, high-end clothing, media, hotels, and luxury goods. Consumer staples corporations sell products that people are unable (e.g. food, beverages, household items) and unwilling (e.g. tobacco) to stop consuming. Consumer staples businesses are considered non-cyclical and the demand for these products is expected to be much more staple as the consumer discretionary goods.
Global Industry Classification Standard (GICS) system
The sectors in S&P 500 are based on the Global Industry Classification Standard, an industry taxonomy developed by Standard & Poor’s together with Morgan Stanley Capital International. On top of the ten main sectors, the system has, 24 industry groups, 67 industries and 156 sub-industries. Other classification system include The Industry Classification Benchmark (ICB) developed by by Dow Jones and FTSE and The Standard Industrial Classification SIC created by the US government.
The Select Sector Indices
S&P Dow Jones is also maintaining separate indexes for different sectors (The Select Sector Indices). These indexes differ a little bit from the sector classification used for S&P 500. Real Estate has its own index and Technology index includes both IT and Telecom Services. The indices are:
- Consumer Discretionary (GICS Consumer Discretionary Sector)
- Consumer Staples (GICS Consumer Staples Sector)
- Energy (GICS Energy Sector)
- Financial (GICS Financials Sector)
- Health Care (GICS Health Care Sector)
- Industrials (GICS Industrials Sector)
- Materials (GICS Materials Sector)
- Real Estate (GICS Real Estate Industry Group excluding Mortgage REITs)
- Technology (GICS Information Technology Sector & Telecommunication Services Sector)
- Utilities (GICS Utilities Sector)