Sector concentration

Sector concentration is the share of a portfolio invested in a single industry sector. It captures how exposed a portfolio is to industry-wide events — interest rate moves, regulatory changes, sector rotations.

Formula

sector_concentration = sum(positions_in_sector) / total_portfolio_value

Sector classification typically uses GICS, the standard reference for institutional portfolios. ETFs are decomposed into their underlying sector exposures before concentration is calculated.

Common thresholds

• Below 20% — typical for diversified equity portfolios
• 20%–30% — overweight, but within normal active management ranges
• 30%–40% — concentrated. The sector drives most of the portfolio's short-term movement
• Above 40% — the portfolio is effectively a sector bet plus diversification

Sector thresholds are higher than position thresholds because a single sector still spans many companies with different business models.

Why it matters

Sector-wide events affect every position in a sector simultaneously. A portfolio with 60% allocated to Information Technology will move sharply on a tech-specific event — regardless of how many tech companies you hold. Diversification across companies within a sector does not protect against sector-level moves.

The 11 GICS sectors

GICS divides the equity market into 11 top-level sectors:

1. Information Technology
2. Financials
3. Health Care
4. Consumer Discretionary
5. Communication Services
6. Industrials
7. Consumer Staples
8. Energy
9. Utilities
10. Real Estate
11. Materials

See GICS for more on the classification system.