Sector Indices, Market Concentration and Portfolio Construction

Originally published by ETF Stream on 9 July 2026. Sponsored by S&P Dow Jones Indices

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FIP Perspective

The article highlights three important developments in equity investing.

First, market concentration can obscure opportunities beneath headline index performance. Sector-level dispersion creates differentiated return patterns that broad market indices do not necessarily capture. Understanding this dispersion is central to FIP's research.

Second, sector leadership changes over time. While sector allocations are often used to express macroeconomic views, FIP takes a different approach. Rather than forecasting which sectors will benefit from economic or geopolitical developments, our rules-based methodology systematically ranks and selects sectors based on observable evidence.

Third, sectors are increasingly recognised as building blocks for portfolio construction. We see particular value in combining systematic sector selection with established investment approaches. This offers diversification not only across market exposures, but also in the decision-making process itself.

You can read more about our approach to European dynamic sector rotation here

This article features an interview with Tim Edwards of S&P Dow Jones Indices, discussing sector-level exposures, market concentration and the role of sector indices in portfolio construction.

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