How is index data helping market participants make more informed decisions at the sector level? S&P DJI’s Anu Ganti and Agatha Malinowski discuss how the new Sector Liquidity Monitor in the U.S. Sector Dashboard means investors can now get sector performance, factor exposure, fundamental metrics and liquidity all in one resource to inform sector strategy decisions.
[TRANSCRIPT]
Paul Murdock:
How is index data helping market participants make more informed decisions at the sector level? Hello, I’m Paul Murdock, and joining me today for a closer look at a new tool for tracking sector liquidity are Anu Ganti and Agatha Malinowski from S&P DJI’s Index Investment Strategy team. Anu, Agatha, thanks for joining me today.
Anu Ganti:
Nice to be here.
Agatha Malinowski:
Thanks, Paul.
Paul Murdock:
So, Anu, to start, can you tell us a little bit about what is in the U.S. Sector Dashboard?
Anu Ganti:
Yes. So, the U.S. Sector Dashboard comes out monthly, and we track performance across the cap spectrum. It’s very timely, especially seeing the shifts among sector performances over the past year away from bigger sectors like Information Technology and Consumer Discretionary and toward more cyclical sectors like Energy and Materials.
We also track fundamental metrics as well as factor exposures. For example, if you look at Information Technology, it has a tilt away from small size, a tilt toward quality, a tilt toward high beta. And, these factor tilts shift over time, which is why we track these exposures.
An additional metric that we track is just volatility within sectors. And, we break it down into dispersion within sectors, or that cross-sectional volatility, as well as correlations within sectors. Now, this is important because the greater that dispersion is within sectors, the greater the opportunity set to add value from stock selection. And, there’s greater opportunity, for example, within sectors like Information Technology and Consumer Discretionary and lower dispersion, for example, within Utilities and Real Estate.
Finally, one of the important measures that we look at is just the contribution of sectors to total dispersion. And, this is an important measure because the greater that contribution is, the greater the opportunity to add value from sector-weighting decisions versus stock-selection decisions. So, this is one of our favorite measures to look at. And, finally, we have a new Sector Liquidity Monitor within the U.S. Sector Dashboard, which Agatha will speak more to. So, now you’ve got performance, factor exposures, fundamental metrics and liquidity all in one package.
Paul Murdock:
Thanks, Anu. And, Agatha, why is sector liquidity important, and how are we tracking it?
Agatha Malinowski:
Yes. So, it’s super important. Sector liquidity not only shows us where capital is being allocated to, but it shows us where investors are expressing views as markets evolve. Liquidity plays a central role in price discovery, risk transfer and portfolio positioning, which are all affected by how efficiently and quickly investors are able to move between sectors, whether that’s moving into an area of strength or hedging a specific area of the portfolio. And, we measure trading activity by looking at products linked to the S&P 500, such as sector ETPs and sector futures. So, we look specifically at notional volumes, changes in notional volumes on a monthly basis and seasonally adjusted notional volumes, specifically for futures that are affected by calendar effects and contract roles.
Paul Murdock:
Thanks, Agatha. And, Anu, how has the role of sector-based instruments changed in recent years?
Anu Ganti:
That’s an excellent question. And, sector ETFs have been around for a long time, since the late 1990s. And, if you look at assets tied to S&P sector and industry ETFs, they’ve roughly tripled over the past decade. But, the real story is looking at notional volumes. We’ve seen that they’ve grown roughly 10 times that of assets. Specifically, looking at March 2026, we saw over USD 500 billion traded in notional volumes across S&P 500 sector ETPs. One of the recent notable evolutions is the increased usage of sector and industry futures. And, we saw greater than USD 100 billion in notional volumes traded across S&P 500 sector futures. So, if you put all of these things together, that’s roughly greater than USD 600 billion in notional volumes across the S&P 500 sector ecosystem. And, particularly, if you dial in some of these increases that come from sectors like Financials and Information Technology.
So, just stepping back and thinking about the use case for sectors, it can be sector investors with a top-down approach to asset allocation, expressing those macro views. It can be bottom-up investors expressing stock views relative to sectors. So, whether for tactical purposes or diversification purposes or for strategic allocations, the increase in sector liquidity can benefit both price discovery as well as market efficiency, just at a more granular level.
Paul Murdock:
Thanks, Anu. And, Agatha, how has sector trading differed from benchmark representation?
Agatha Malinowski:
Yes, so there is a difference. The S&P 500 is constructed based on market capitalization, while trading tied to S&P 500 sectors reflects how investors are expressing views and drawing attention to specific areas in the market. And, as a result, certain sectors see elevated trading activity in comparison to their index representation. And, the primary drivers of that may be macroeconomic sensitivities or major market narratives that cause specific sectors to react differently from others, which entail forces investors to change their positioning or manage their risk differently than before. And, this insight is actually quite important, because it shows us that trading activity is not tied to the greatest or largest segments of the market. Rather, it’s tied to where investors are drawing attention and where the greatest sensitivities lie, which allows us to take a different lens and look under the hood at what’s driving sector performance at a more granular level than sector composition.
So, for example, in March 2026, we saw Energy have a greater share of trading activity in comparison to its index representation, while Information Technology actually had a lower level of trading in comparison to its weight in the S&P 500. And, that can be attributable to the increased level of geopolitical risk that we’re currently seeing within the market.
Paul Murdock:
Great. Well, thank you, Agatha and Anu, for your sector insights today.
Agatha Malinowski:
Thanks, Paul.
Anu Ganti:
Thank you so much.
Paul Murdock:
To get the latest U.S. Sector Dashboard, including the new Sector Liquidity Monitor, sign up at the link below to have our research delivered straight to your inbox. Thanks, and see you next time.
