The Ibbotson Associates research for INVESCO Funds Group examined the diversification that allocations to sectors can bring to the portfolio of a long-term investor – over a wide range of risk levels.
Concentrating on the sectors of energy, financial services, utilities, technology, health care, telecommunications, leisure and real estate, Ibbotson found that for equity investors, sectors offer the potential for higher than average returns.
Sectors also offered a more simplified and diversified way to participate in a particular market sector or industry than choosing individual stocks, according to a press release.
Sectors also provide portfolio diversification due to their low correlation with each other and with the overall market, Ibbotson said.
“Introducing industry sectors can enhance the risk-return tradeoff of a portfolio,” Peng Chen, Ibbotson Vice President of Research, said in a statement. “Sectors can simply be added to a portfolio or used to construct the entire equity portion of a portfolio with moderate-to-aggressive investment objectives.’