A concentrated portfolio holds one or a few sectors, so its result depends on which ones. A diversified portfolio holds many, so no single one matters as much. A sector is a group of companies in the same line of business, such as energy or health care. We tested both with the 11 sectors of the S&P 500, the index of 500 large US companies.
Since June 2018, holding one sector alone earned between 7.8% and 21.4% a year. Holding all 11 earned 12.6% a year. The concentrated holdings produced both the best yearly return and the worst.
What is the difference between a concentrated and a diversified portfolio? A concentrated portfolio holds one or a few sectors, while a diversified portfolio holds many. In our test, one sector alone earned between 7.8% and 21.4% a year, and all 11 sectors together earned 12.6%.
Ten of the 11 sectors, held alone, earned less a year than all 11 together. One earned much more: Technology, at 21.4% a year.
The worst fall (the largest drop from a high to a later low) was 36.3% for all 11. For one sector alone it ran from 24.5% to 66.8%.
Recovery (the time from that high until the portfolio closed at or above it again) took 0.72 years for all 11. For one sector alone it took between 0.48 and 3.27 years.
What did we test?
The S&P 500 divides into 11 sectors. State Street Investment Management manages 11 Select Sector funds, one per sector. Each holds the S&P 500 companies of one sector, according to the issuer's own fund pages, which we read on 11 November 2026. Our guide to the sectors explains each.
The funds hold between 21 and 83 companies each, as at 10 November 2026. So even one sector fund holds many companies. The test varies the number of sectors.
The data run from 19 June 2018, the first price of the Communication Services fund, to 10 November 2026. That is 2,111 daily prices over 8.4 years, with dividends counted. Every holding is a Select Sector fund. All of them hold US companies.
We tested every combination of one to 11 sectors, 2,047 in all. Each holds its sectors in equal weight, reset every day. The portfolio of all 11 is the diversified one. The concentrated ones hold one sector, or a few.
We measure three things. The yearly return is the single yearly rate that would turn the starting sum into the ending sum. The worst fall is the largest drop from a closing high to a later closing low in the window. Recovery is the time from that high until the portfolio closed at or above it again.
Did one sector beat holding all 11?
One did. Technology earned 21.4% a year, which turned $10,000 into $51,024. All 11 together earned 12.6% a year and turned $10,000 into $26,978.
The other ten sectors earned less than all 11 together. Industrials came closest at 12.3% a year. Real Estate earned least at 7.8%, which turned $10,000 into $18,716.
Chart 1 shows the 11 single sectors, the diversified portfolio, and SPY (the S&P 500 ETF, a fund that trades on the stock exchange like a share) for reference.
Source: YX Insights price data
SPY earned 14.4% a year. It is a reference only. SPY weights each company by its size, while our mix weights each sector equally, so the two differ in more than one way.
What were the worst falls and the recovery times?
The 11 sectors had very different worst falls. Energy fell 66.8% from 9 October 2018 to 18 March 2020. It closed at or above its old high again on 14 January 2022, which is 3.27 years after the high.
Consumer Staples had the shallowest worst fall, at 24.5% from 14 February to 23 March 2020. It recovered in 0.49 years. All 11 together fell 36.3% over the same weeks of 2020 and recovered on 9 November 2020, after 0.72 years.
Chart 2 gives the worst fall and the recovery time for every sector and for the diversified portfolio.
Source: YX Insights price data
Four of the 11 sectors had a shallower worst fall than all 11: Consumer Staples, Health Care, Technology, and Utilities. The other seven fell further.
Technology fell 33.6% from 27 December 2021 to 12 October 2022. It recovered on 15 June 2023, after 1.46 years.
Diversifying did not give the fastest recovery. SPY recovered in 0.47 years, Health Care in 0.48, and Consumer Staples in 0.49. All 11 together recovered faster than eight of the 11 sectors. Three sectors needed more than two years, while the diversified portfolio did not.
The longest wait is the longest span from any closing high to the next close at or above it. It can differ from the recovery time.
Real Estate shows how. Its worst fall recovered within 1.11 years. It then spent 4.44 years below a later high, from 31 December 2021 to 9 June 2026. All 11 together had a longest wait of 1.32 years, from 29 March 2022 to 24 July 2023.
What happens as we add sectors?
Chart 3 shows the range of worst falls across every combination, for six portfolio sizes.
Source: YX Insights price data
The range narrows quickly. Single sectors ranged from a 24.5% fall to a 66.8% fall. Combinations of three sectors ranged from 27.2% to 48.4%. Combinations of five ranged from 29.2% to 43.6%. Combinations of eight ranged from 31.9% to 39.5%.
The mean barely moves after three sectors. The mean worst fall was 39.7% for one sector, 36.6% for three, and 36.3% for eight and for 11. Adding sectors mostly removed the worst outcomes, along with the best.
The table shows the yearly return, the worst fall, and the recovery time for the same six sizes.
Sectors held | Combinations | Yearly return, lowest to highest | Worst fall, mildest to deepest | Recovery, fastest to slowest (years) | Median recovery (years) |
|---|---|---|---|---|---|
1 | 11 | 7.8% to 21.4% | 24.5% to 66.8% | 0.48 to 3.27 | 1.11 |
2 | 55 | 9.0% to 17.6% | 26.1% to 53.5% | 0.30 to 2.92 | 0.71 |
3 | 165 | 9.6% to 16.1% | 27.2% to 48.4% | 0.30 to 2.64 | 0.64 |
5 | 462 | 10.3% to 14.7% | 29.2% to 43.6% | 0.30 to 1.03 | 0.66 |
8 | 165 | 11.0% to 13.6% | 31.9% to 39.5% | 0.46 to 0.83 | 0.72 |
11 | 1 | 12.6% | 36.3% | 0.72 | 0.72 |
Equal-weight portfolios of the 11 Select Sector funds, reset every day, from 2,111 daily prices, 19 June 2018 to 10 November 2026, with dividends counted. Every combination of each size shown is included. Recovery is the time from the closing high before the worst fall until the next close at or above it. Source: YX Insights price data
In the table, the worst-fall range narrows from 24.5% to 66.8% at one sector to 31.9% to 39.5% at eight.
At five sectors, 253 of 462 combinations earned less than all 11. At three sectors, 119 of 165 did. The mean yearly return rose from 11.5% for one sector to 12.4% for five and 12.6% for 11.
Does the answer hold in other windows?
The ranking of sectors belongs to this window. Technology's 21.4% a year belongs to it too. The test does not say which sector will lead next.
We reran the test five ways. The runs were the main window, the first half, the second half (split on 31 August 2022), and 10 sectors from 8 October 2015. That run leaves out Communication Services, which has no price before June 2018. The fifth put equal dollars in at the start with no daily reset.
In each of the five, at least six of the sectors earned less than the diversified portfolio. In each, a majority of the sectors had a deeper worst fall. The best single sector also beat the diversified portfolio in all five.
So the pattern held in every run: at least six sectors earned less, a majority fell further, and the best single sector earned more. Our guides to the worst falls, how long recoveries take, and equal weight against market weight cover the measures used here.
The test covers one asset class over 8.4 years. It makes no forecast. In it, holding all 11 sectors earned more than ten single sectors, fell less than seven, and recovered faster than eight. Holding one sector gave both the best yearly return and the worst.
Get the next explainer
The Academy is free to read, here on the web. The Long Trend, our free weekly letter, comes by email.
Learn more with YX Insights
This explainer is part of the YX Insights Academy. Each one takes a single idea and checks it against real data.
The same approach runs through everything else we publish:
Systematic Portfolio: ready-made portfolios for Macro & Megacaps and for Commodities. We publish the holdings and every change.
Multi-model Signals: a daily long-or-flat call on every name we cover. Each call shows how strongly our four models agree.
Research: company deep dives, macro commentary and essays on how we test.
Good places to start on the website:
Academy: more explainers like this one.
Start here: get our free weekly letter by email.
Macro & Megacaps Systematic Portfolio and Commodities: the two portfolios in detail.
Track record: live results since 3 August 2026, plus the ten-year backtest.
Upgrade: get the Systematic Portfolio, Multi-model Signals and research in full.
Common questions about concentrated portfolios
What is a concentrated portfolio?
A concentrated portfolio holds one or a few sectors, so each one has a large effect on the result. In our test of the 11 US sectors, one sector alone earned between 7.8% and 21.4% a year, from 19 June 2018 to 10 November 2026. All 11 together earned 12.6%.
Do concentrated portfolios earn higher returns?
They can, but in our test most did not. Ten of the 11 single sectors earned less than all 11 together, while Technology earned 21.4% a year against 12.6%. The best and worst yearly returns both came from single sectors, so concentration widened the range of results.
Is the worst fall deeper in a concentrated portfolio?
Often, but not always. Seven of the 11 single sectors fell further than all 11 together, which fell 36.3%. Single sectors ran from 24.5% for Consumer Staples to 66.8% for Energy. Four of the 11 had a shallower worst fall than the diversified portfolio.
Does diversification speed up recovery from a fall?
Not always. Recovery from the worst fall took 0.72 years for all 11 sectors, from 19 February to 9 November 2020. Single sectors took between 0.48 and 3.27 years. Energy took longest, at 3.27 years, while Health Care and Consumer Staples recovered faster than the diversified portfolio.
DISCLAIMER: This article is intended for educational purposes only. Any information or analysis in this note does not constitute an offer to sell or a solicitation of an offer to buy any securities. Nothing in this note is intended to be investment advice, nor should it be relied upon to make investment decisions. Any opinions, analyses, or probabilities expressed in this note are those of the author as of the note's date of publication and are subject to change without notice.
