If you are building a portfolio of individual securities, then the sectors you invest in should be part of your overall asset allocation plan. Recently I ran a post which energy companies are most predominant in a few dividend ETFs. I took this analysis one step further and tried to dissect what sectors dividend ETFs had represented. I do this to assist my own portfolio building process and asset allocation decisions – I want to make sure I have managed the risk appropriately in my portfolio and not being too overweight in one sector is part of that.
Before going into this exercise, I had a hunch that one particular sector would dominate in all ETF portfolios I looked at. It is an area that I traditionally have been overweight in and it had weighed on my returns over the past six months. Many funds, dividend funds and just “normal” equity funds in general, have been impacted by this sector. Obviously I am talking about the Financial sector (Citigroup, Bank of America, WaMu). Here is the results of my quick and dirty analysis and how the financial sector stacked up:
Yup, financials make a large percentage of dividend ETF funds, followed by consumer staples. Makes sense if you think about it – some of the best dividend paying and dividend growth companies are in the financial sector so to track the dividend indexes these funds need to make sure they are invested in the sectors that represent the market.
For my own dividend portfolio, this information is important to ensure I have the appropriate breakdown represented by my own dividend stocks. I have some work to do on this part of my portfolio, but over time will focus on adding stocks that are in sectors I do not currently have.