Here’s the structure of the S&P 500 by sector from my last post:

Information Technology =31.3% of the index

Financials =13.9%

Consumer Discretionary =10.7%

Healthcare =10.6%

Communication Services =8.9%

Industrials =8.6%

Consumer Staples =5.7%

Energy =3.4%

Utilities =2.5%

Real Estate =2.2%

Materials =2.1%.

We can sort these broadly into two groups: defensive, meaning whose profits are not very sensitive to changes in the business cycle, and aggressive or cyclical, meaning profits will respond strongly to changes in economic conditions.

Defensives: = 20% of the S&P:

–Healthcare 10.6%

–Consumer staples 5.7%

–Utilities 2.5%

–Real estate (basically income-oriented REITs) 2.2%.

Aggressives:

type 1 = Traditional domestic business cycle beneficiaries = 38.7%

Financials 13.9%

Consumer discretionary 10.7%

Industrials 8.6%

Commodities = Energy +3.4%

Materials 2.1%

type 2 = Tech, mostly multinational = 40.2%

IT 31.3%

Communication services 8.9%.

The first thing that strikes me from this compilation is that it’s hard to become really defensive. If we define risk as deviation from the structure of the index, and if all one does is sector selection, a totally defensive stance would be an all-or-nothing bet on 20% of the index.

more tomorrow