When it comes to evaluating a portfolio’s sector risk exposures, analysts typically take stock of a portfolio’s holdings, and then group them by sector. In the pie chart below, we show the breakdown of the S&P 500 constituents by sector. This type of holdings analysis (or breakdown approach) provides a useful point-in-time snapshot of a portfolio. However, we think that it can give an incomplete - or at times, even a misleading - picture of a portfolio’s risk exposures. In this article, we use the energy sector to explain why.