Sectors of the Australian sharemarket

14 Mar 2013

By Shadforth Financial Group

The sharemarket is divided into various sectors, which are known as Global Industry Classification Standards. These are standards that are applied in all the developed markets of the world and enable a comparison to be made between the various sectors and markets.

The Global Industry Classification Standards are:

  • Energy sector - This refers to all companies that are involved in the oil and gas industries which include petroleum, natural gas, electrical power, coal, and nuclear power. The main companies in this sector in Australia are Woodside Petroleum, Santos and Origin Energy.
  • Materials sector - This refers to all companies that are involved in the commodity-related manufacturing industries. This includes those involved in mining, steel, chemicals, glass, paper, and forest products. The main companies in this sector in Australia are BHP Billiton, Newcrest Mining and Rio Tinto.
  • Industrials sector - This refers to all companies that are involved in the transportation, manufacture and distribution of capital goods and the provision of commercial services and supplies. The main companies in this sector in Australia are Qantas Airways, Seek, Leighton Holdings and Toll Holdings.
  • Consumer discretionary - This refers to all companies that are involved in the sale of consumer goods or the provision of discretionary services to the consumer (for example, a tourism or media-based company). This sector is heavily dependent on the economic cycle. For example, during the recent global financial crisis these stocks fell heavily. The main companies in this sector in Australia are Harvey Norman, Flight Centre, Myer Holdings, Tatts Group, Wotif, and JB HiFi.
  • Consumer staples - This refers to all companies that are involved in food, alcohol, tobacco and drug retailing. These businesses are less sensitive to economic cycles and in uncertain times these companies tend to outperform the broader market. The main companies in this sector in Australia are Woolworths, Coca Cola Amatil, Fosters Group, Metcash Group, and Wesfarmers (includes Bunnings and Coles).
  • Healthcare - This refers to all companies that are involved in health-related services and the research, development, production and marketing of pharmaceutical products. The main companies in this sector in Australia are Resmed, CSL, Sonic Healthcare, Healthscope and Cochlear.
  • Financial services - This refers to all companies that are involved banking, investment, insurance, real estate (i.e. property trusts) and any other financial services related business. The main companies in this sector in Australia are the big 4 banks (ANZ, Westpac, Commonwealth Bank and National Australia Bank) and Westfield.
  • Information Technology - This refers to all companies that are involved in the information technology field including software and associated services, technology hardware and equipment. The main companies in this sector in Australia are Computershare and Carsales.com.
  • Telecommunication - This refers to all companies that are involved in providing communications services in Australia such as wireless, broadband and fixed line. The main companies in this sector in Australia are Telstra and Singapore Telecommunications.
  • Utilities - This refers to all companies that are involved in gas or water utilities or producers of power. The main company in this sector in Australia is AGL Energy.

If we look at the Australian sharemarket these sectors make up the following proportions of the market: 

Sector* % of ASX
Financials 40.7%
Energy 7.1%
Materials 24.0%
Industrials 6.5%
Consumer Discretionary 4.2%
Consumer Staples 8.4%
Health Care 3.6%
Information Technology 0.7%
Telecommunication Services 3.6%
Utilities 1.3%

100%

*these sector allocations are current as at May 2012, and vary slightly from month to month depending on the underlying performance of the various sub sectors.

From this table you can see that our market is really dominated by three sectors - financials, materials and energy, which account for approximately 70% of the market.

Many successful investors adopt what is called a macro approach to investing by looking at what sectors they believe will be the growth areas and then select companies within that sector. For example, in a bear market the consumer staples sector generally out performs the market. Why? The simple answer is people still need to eat and drink no matter what the economic conditions are. Each sector performs differently depending on the different economic conditions. In a bear market, when markets fall by more than 20% you expect the consumer staples and health care sectors to outperform. Whilst in a bull market, when markets rise by more than 20%, you expect financials, consumer discretionary, materials and the energy sectors to outperform. 

If you have any questions in relation to your share portfolio please don't hesitate to contact the Shadforth Financial Group. 

If you like this article, please feel free to share it with your family and friends.

Educational guides