Single-Stock and Single-Sector Risk

A couple of weeks ago, I wrote about how the S&P 500 index is the “sum of its parts” and made up of different industry sectors. I specifically referenced the Utilities sector as a traditionally “defensive” sector that is used by one tactical manager to give signals for strength or weakness in the markets.

Well, news today makes it hard to call the Utilities sector “defensive”! Pacific Gas & Electric (PCG) today indicated that it plans to file for bankruptcy due to potential liability for the fires in California. No telling where this may end for PCG at this early stage, but this simply highlights the trouble with single-stock and single-sector risk. PCG stock was down -50% during today and the Utilities sector ETF (XLU) was down -2.2%. Though this did not come out of nowhere, it is a shock to the system and a more broadly diversified portfolio would help insulate against this occurrence materially impacting your portfolio performance.