Just wondering how fellow investors are guided by this. (It's on the 'Allocation' tab of the portfolio.
For instance, I'm holding off on Industrials as I am well overweight on this according to the graph. I also don't hold any companies in some sectors.... there are companies I like but not at the prices I am looking for. It is quite tempting to say 'sod it' and pay over the target price just to have some balance.
On one side I am thinking I don't know the future, therefore it might be good to diversify evenly with the market. Being attracted to discounts from (perceived) intrinsic value might see you holding many correlated stocks.
On another side I am thinking that the sectors are quite arbitrary. Ramsdens Holdings (LON:RFX) (which I hold) is classified as Financials, but I bought in part because I like its defensive qualities. But to hold exposure in every part of the economy might result in too many stocks being held. For example, International Consolidated Airlines SA (LON:IAG) (which I hold) is a bit of a different beast to Go-Ahead (LON:GOG) (which I used to hold), but both are Passenger Transportation.
I look at it occasionally out of curiosity.
Arguments have been made for equal exposure to sectors (e.g. NAPS), which for a semi-passive portfolio approach makes sense to me, as sectors go in and out of fashion and you want exposure to this.
If your style is more active and strategy driven (Factor, stock picking, macro etc..) then I think that it is the companies selected which dictate the proportions in each sector; you might have a sector cap in mind, to limit exposure to a sector, for the same reasons above as you have.
If you are trying to emulate a tracker then balancing proportions to be the same as the market makes sense - but a DIY tracker makes no sense as you would track worse than instruments set up for this and probably at higher cost. I can't see a reason to do this.
