Sector Vs. Style: A Look At The Data

October 03, 2008

Jim Wiandt and I have been engaged in a debate over which matters more: style or sector.

Actually, it's not much of a debate. Right now, I think it's fair to say we both agree that sectors are driving market performance much more than style. One need look no further than Financials for proof of that.

With that in mind, I thought it would be interesting to look at the way sector and style interact, with a simple look at the sector breakdown in each of the nine sector style boxes.

To make my analysis easier, I'm using exchange-traded funds as proxies for the different style boxes. One of the great things about ETFs is that providers have invested huge amounts of money into their Web sites, and they make loads of data available for free to investors.

I'm using the S&P-based style box ETFs from iShares for my analysis, although any index and ETF family would do.

 

Total Market

First, to set the stage, let's look at the breakdown in the total U.S. market. The index for that is the S&P 1500, represented by the iShares S&P 1500 Index Fund (NYSEArca: ISI).

Despite the pullback in Financials this year, as of October 2, 2008, they were still the single largest sector of the market, at 16.59% of the index. After that, you have Information Technology (15.41%), Health Care (13.39%) and Energy (12.15%).

Here's the complete table.

 

S&P 1500

Financials

16.59%

Information Technology

15.41%

Health Care

13.39%

Energy

12.15%

Consumer Staples

11.75%

Industrials

11.13%

Consumer Discretionary

9.07%

Utilities

4.04%

Materials

3.44%

Telecommunication Services

2.83%

 

Large-Caps

Next up was large-caps. The funds here are the iShares S&P 500 Index Fund (NYSEArca: IVV), iShares S&P 500 Growth Index Fund (NYSEArca: IVW) and iShares S&P 500 Value Index Fund (NYSEArca: IVE).

Not surprisingly, the sector breakdown for the broad S&P 500 looks a lot like the S&P 1500; after all, the S&P 500 makes up the majority of the market capitalization in the S&P 1500.

But when you get to the Value and Growth indexes, things get very interesting. These two indexes don't just tweak their exposure to the various sectors; they change it radically.  The S&P 500 Value ETF has a 28.37% weight in Financials, nearly 75% greater than the S&P 500 itself.  Meanwhile, Financials make up just 5.11% of the S&P 500 Growth ETF.

Conversely, Information Technology and Energy make up 44.75% of the S&P 500 Growth ETF, and just 10.67% of the S&P Value ETF.

If you want to know what's driving the performance of these Growth and Value subsets, that's it.

 


S&P 500

S&P 500 Growth

S&P 500 Value

  Financials

16.21% 

  Information 
  Technology

23.83% 

  Financials

28.37% 

  Information
  Technology

15.59% 

  Energy

20.92% 

  Industrials

12.84% 

  Health Care

13.45% 

  Health Care

16.44% 

  Consumer Staples

11.19% 

  Energy

12.91% 

  Consumer Staples

14.17% 

  Health Care

10.17% 

  Consumer Staples

12.75% 

  Industrials

8.39% 

  Consumer
  Discretionary

8.69% 

  Industrials

10.51% 

  Consumer
   Discretionary

8.15% 

  Utilities

7.19% 

  Consumer
  Discretionary

8.41% 

  Financials

5.11% 

  Information
   Technology

6.55% 

  Utilities

3.63% 

  Materials

2.40% 

  Telecommunication
  Services

6.52% 

  Materials

3.18% 

  Utilities

0.38% 

  Energy

4.12% 

  Telecommunication
   Services

3.15% 

  Telecommunication
   Services

--- 

  Materials

4.03% 

 

 

Mid-Caps

The differences are even more pronounced in the mid-cap sector. For starters, the iShares S&P MidCap 400 Index Fund (NYSEArca: IJH) has much higher allocations to Financials (19.55% vs. 16.59%), Industrials (14.62% vs. 11.13%) and Consumer Discretionary (13.81% vs. 9.07%) than the broad S&P 1500.

But the differences are again severely exaggerated when you move into Growth and Value. The iShares S&P MidCap 400 Growth Index Fund (NYSEArca: IJK) is strongly overweight Health Care (20.30% vs. 12.48%) and Consumer Discretionary (20.06% vs. 13.81%) vs. the S&P 400, and strongly underweight Financials (7.73% vs. 19.55%).

By contrast, the iShares S&P MidCap 400 Value Index Fund (NYSEArca: IJJ) is hugely overweight Financials and Utilities. Fully 30.06% of the fund is allocated to Financials, and 14.26% to Utilities. If you want to know how mid-cap value will perform, there's your clue.

 

S&P 400

S&P 400 Growth

S&P 400 Value

  Financials

19.55% 

  Health Care

20.30% 

  Financials

30.06% 

  Industrials

14.62% 

  Consumer
  Discretionary

20.06% 

  Utilities

14.26% 

  Consumer
  Discretionary

13.81% 

  Information
  Technology

15.88% 

  Industrials

13.77% 

  Information
  Technology

13.21% 

  Industrials

15.57% 

  Information
  Technology

10.83% 

  Health Care

12.48% 

  Energy

8.83% 

  Consumer
  Discretionary

8.24% 

  Utilities

8.12% 

  Financials

7.73% 

  Materials

7.37% 

  Energy

6.64% 

  Materials

5.55% 

  Health Care

5.51% 

  Materials

6.52% 

  Consumer Staples

4.70% 

  Energy

4.69% 

  Consumer Staples

4.09% 

  Utilities

1.21% 

  Consumer Staples

3.54% 

  Telecommunication
  Services

0.51% 

  Telecommunication
  Services

--- 

  Telecommunication
  Services

0.97% 

 

Small-Caps

The story is similar in small-caps. Compared with the broader market, the iShares S&P SmallCap 600 Index Fund (NYSEArca: IJR) is overweight Financials (19.82% vs. 16.59%), Industrials (17.39% vs. 11.13%) and Consumer Discretionary (14.29% vs. 9.07%), and underweight Energy (5.98% vs. 12.15%) and Consumer Staples (4.29% vs. 9.07%).

On the growth and value segments, the story is familiar. The iShares S&P SmallCap Growth 600 Index Fund (NYSEArca: IJR) is overweight Health Care and Consumer Discretionary, and underweight Financials. The iShares S&P SmallCap Value 600 Index Fund (NYSEArca: IJR) is overweight Financials (27.07% of the fund) and Utilities, and underweight Health Care and Energy.

 


S&P 600

S&P 600 Growth

S&P 600 Value

  Financials

19.82% 

  Health Care

19.19% 

  Financials

27.07% 

  Industrials

17.39% 

  Consumer
  Discretionary

18.47% 

  Industrials

17.77% 

  Information
  Technology

15.76% 

  Information
  Technology

18.03% 

  Information
  Technology

13.84% 

  Consumer
  Discretionary

14.29% 

  Industrials

16.92% 

  Consumer
  Discretionary

10.80% 

  Health Care

13.93% 

  Financials

10.97% 

  Health Care

9.52% 

  Energy

5.98% 

  Energy

8.81% 

  Utilities

8.40% 

  Utilities

4.68% 

  Consumer Staples

4.25% 

  Consumer Staples

4.32% 

  Consumer Staples

4.29% 

  Materials

2.25% 

  Materials

4.20% 

  Materials

3.32% 

  Telecommunication
  Services

0.38% 

  Energy

3.63% 

  Telecommunication   
  Services

--- 

  Utilities

0.17% 

  Telecommunications
  Services

--- 

 

 

Financials

Given how starkly important Financials are at the moment, and how widely exposure varies in the indexes, I thought it'd pay to look at all nine style box exposures to Financials side by side.

From 5.11% to 30.06% ... Gee, do you think that sector exposure might have something to do with returns?

 

Index

Financials

  S&P 500

16.21% 

  S&P 500 Growth

5.11% 

  S&P 500 Value

28.37% 

  S&P MidCap 400

19.55% 

  S&P MidCap 400 Growth

7.73% 

  S&P MidCap 400 Value

30.06% 

  S&P SmallCap 600

19.82% 

  S&P SmallCap Growth 600

10.97% 

  S&P SmallCap Value 600

27.07% 

 

 

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