3-minute guide: How to understand investment sectors

When you invest, you’re not just choosing companies — you’re choosing industries, also known as sectors. Sectors group companies with similar types of business, such as financials, healthcare, technology, or energy. Understanding how different sectors perform at different times can help you build a more balanced and resilient portfolio. 

This guide helps you see the bigger picture and gives you a simple way to start thinking about your portfolio in terms of sectors — not just individual funds or companies.

Why sectors matter (even if you’re just starting out)

Let’s say you bought shares in a trendy tech company. That’s great — but if your entire portfolio is made up of similar tech names, what happens when the sector hits a rough patch?

That’s where sectors come in. Thinking in terms of sectors helps you diversify. In other words, it spreads your risk across different parts of the economy, so you’re not overly reliant on one area.

By understanding which sectors tend to do well during different economic cycles (and which don’t), you’ll start making more intentional investing choices — even if you’re just buying one fund.

What’s an investment sector?

In the simplest terms: an investment sector is a group of companies that do similar things. For example:

• Banks, insurance companies, and mortgage lenders are in the financials sector.
• Hospitals, pharmaceutical companies, and biotech firms sit in healthcare.
• Oil, gas, and renewables? That’s the energy sector.

You’ll often see these listed in fund factsheets, indexes, and financial press. You don’t need to know every sector, but it’s important to understand their significance. Different sectors react differently to what’s happening in the economy, interest rates, inflation, and even politics.

For example:

• In 2020, tech and healthcare boomed during the pandemic.
• In 2022, energy outperformed nearly everything else due to the war in Ukraine and rising oil prices.
• In 2023, financials took a hit when a few banks collapsed in the US.

If your money is all in one sector — even if it’s doing well now — it could take a big hit later if that sector falls out of favour. Imagine you invest in a global fund with a 30% allocation to tech. If tech stocks fall by 10%, that single piece could drag down your whole portfolio more than you expected, especially if other sectors aren’t there to balance it out.

How do I know what sectors I’m invested in?

If you’re investing via investment funds (rather than picking individual stocks), the easiest and quickest way to determine your sector exposure is to look at your fund’s factsheet. This is usually available on your platform or provider’s website. If you’re researching an Elite Rated fund, you can even find it directly on our website! There’s often a pie chart or table showing the sector allocation. That tells you how much of your money is in tech, healthcare, financials, and so on.

Here’s what to look for:

• Are most of the holdings in one or two sectors? That might mean you’re more exposed than you realised.
• Do your other funds have similar breakdowns? You might think you’re diversified with five funds — but if they all love tech, your exposure is still concentrated.

Four strategies for your portfolio:

1. Mix cyclical and defensive sectors

Cyclical sectors (like consumer discretionary, financials, or industrials) tend to do well when the economy is growing. Defensive sectors (like healthcare, utilities, and staples) hold up better during tough times.

2. Watch for overlap

If you’re invested in a global fund and a tech fund, you might be doubling up. Use the factsheets to check.

3. Match sectors to your timeline

Investing for the short term? You may want more defensive exposure. Long term? You might ride out more volatile, growth-oriented sectors like tech or emerging markets.

4. Use multi-sector funds

Some funds — especially multi-asset or balanced funds — already aim to spread your money across sectors. They can be a good all-in-one option if you’re new or prefer a hands-off approach.

A few final thoughts

Understanding sectors doesn’t mean you need to overhaul your investments overnight. But having a sector lens can help you:

• Avoid hidden concentration risks
• Stay calm during market volatility
• Make smarter fund choices over time

Think of it as another tool in your investing toolbox — one that helps you see the forest and the trees. It’s also a good way to help connect the dots between what’s happening in the world and what’s happening to your investments. So next time you hear a news headline like “tech stocks tumble” or “healthcare soars,” take a moment to check if your portfolio is affected — not just emotionally, but literally. Knowledge is power — and knowing your sectors is one small step toward being a more confident investor.

We go more in-depth into sectors, asset classes and portfolio construction in our free Demystifying Investments course, aimed at helping you become a confident, more knowledgeable investor. Sign up today.