TGI tracks 13 sectors — the 11 standard GICS categories, plus two custom additions. Diversified is one of them. Here's what it contains, why it exists separately, and how a single rule keeps the whole sector system clean.
The GICS framework organizes operating companies by what they actually do. A bank belongs in Financials. A chipmaker belongs in Information Technology. That system works well for stocks — but funds don't operate businesses. They hold collections of businesses, and some of those collections deliberately span many sectors at once.
When a fund spreads its holdings broadly enough that no single GICS sector dominates its portfolio, forcing it into one of the 11 standard categories would misstate your actual exposure. Does owning SPY — which holds companies across all 11 sectors — really belong in Information Technology just because IT is SPY's largest component? No. That would overstate your IT allocation while hiding the fund's true cross-sector character.
The Diversified sector exists as a clean home for these funds — separate from the 11 GICS sectors, separate from the Leveraged sector, and governed by a single objective rule that decides what belongs here.
Every fund on the TGI watchlist gets classified by the same test: does any single GICS sector represent more than 50% of the fund's holdings?
If yes — the fund belongs in that sector. A fund with 65% of its assets in semiconductor companies is an Information Technology position, regardless of what else it holds. It behaves like a sector bet and gets treated like one.
If no — no single sector exceeds 50% — the fund belongs here, in Diversified. The threshold is a bright line, not a judgment call. It keeps classification consistent across 900+ watchlist entries without requiring case-by-case decisions about what "mostly" means.
Why 50% specifically? It's the majority threshold — the point at which a fund's behavior is genuinely dominated by a single sector's dynamics. Below 50%, no sector controls the fund's outcome. The test is simple enough to apply to any fund in seconds, and consistent enough that two people applying it to the same fund will always reach the same answer.
When you buy an individual stock, you are buying ownership in a specific operating business. When you buy a fund — any fund, ETF, index, or otherwise — something fundamentally different is happening.
You are buying into the design goal of that fund. You are betting on the fund's stated purpose: the theme, the rules, the criteria its managers use to build and maintain the portfolio. Whether that's "track the S&P 500," "focus on dividend growers," "capture clean energy companies," or "hold the fastest-growing large-cap stocks" — that objective is the thing you own. The underlying stock positions are the fund's job, not yours.
This distinction matters for how TGI classifies funds. Rather than trying to look through a fund to its underlying stocks and calculate a weighted sector average, TGI asks a simpler question: what is this fund trying to do? That purpose is recorded in the Industry field for each fund position — notes like "Broad Growth," "Dividend Growth," "Clean Energy," "Space," or "Bitcoin" — because the theme is the real investment.
This is also why Diversified funds don't consume any of the 11 standard GICS sector allocations. You're not actually holding 32% Information Technology when you own SPY — you're holding a broad market index strategy that happens to include IT companies. The IT cap belongs to direct IT exposure, not to the S&P 500's current sector weights.
Funds designed to capture the growth of the overall market. The strategy is participation, not selection. You're buying the economy.
Funds that screen for dividend-paying companies and rising payouts across sectors. The strategy is income sustainability, not any one sector's performance.
Funds targeting specific characteristics — size, momentum, quality — applied across the market. The strategy is the factor, not the sector composition it happens to produce.
Funds organized around a cross-sector theme — clean energy, space, infrastructure — where the idea spans more than any single GICS category.
What about passive index funds with no "manager"? The principle still holds. A rules-based index fund has a design goal built into its index methodology — it just enforces that goal algorithmically rather than through active decisions. You're still buying the rulebook, not the individual stocks inside it.
TGI scores are calculated the same way for funds as for individual companies: dividend growth, price growth across four timeframes, and payout ratio (or expense ratio for ETFs). The formula doesn't distinguish between a company and a fund. It just measures the numbers.
For Diversified funds, this means the scores are genuinely comparable to operating companies on the watchlist. A broad market ETF like VOO that has delivered steady long-term price appreciation and growing distributions will rank accordingly — not inflated by leverage, not suppressed by artificial constraints. The score reflects what the fund actually did.
During periods of strong market performance — like the technology bull run of recent years — broad growth funds will rank well because they've grown well. During sector-specific surges, funds concentrated in that sector may rank even higher. The ranking doesn't editorialize. It shows results, and you interpret them knowing what kind of vehicle produced them.
One practical note for ETFs: payout ratio is replaced by expense ratio in the scoring data. A lower expense ratio scores better, functioning as a structural drag metric the same way a high payout ratio does for a company — both measure what's being siphoned from the engine before you see the benefit.
The Diversified sector follows the same allocation rules as the 11 standard GICS sectors. There are no tighter limits here — because there's no amplified risk profile that would require them.
A Diversified fund holds real underlying assets across real businesses. Its returns come from the actual performance of those companies, not from derivatives, leverage, or daily rebalancing mechanics. The risk profile is what you see — the broad market moves, the fund moves with it. That's the behavior the standard caps are built for.
| Rule | Diversified sector | Leveraged sector |
|---|---|---|
| Sector cap (new purchases) | 10% of portfolio | 5% of portfolio |
| Per-position cap (new purchases) | 5% of portfolio | 1% of portfolio |
| Counts against underlying GICS sectors? | No | No |
| Cap applies to organic growth? | No — only new purchases | No — only new purchases |
The third row is worth pausing on. A Diversified fund does not consume allocation from any of the 11 GICS sectors — even if that fund holds substantial positions in, say, Information Technology companies. Because you're not buying those IT companies directly, your IT sector capacity stays available for actual IT stock positions.
This is the practical benefit of the 50% rule and the Diversified sector existing at all: it prevents broad-market funds from silently filling up sector caps that belong to direct equity positions. The caps govern new purchases only. If a Diversified position grows beyond the cap through price appreciation, that's a win — not a trigger to sell or rebalance. New capital simply gets redirected until the rest of the portfolio catches up.
These are the broad-market ETFs currently held in the TGI portfolio, all classified Diversified because no single GICS sector exceeds 50% of their holdings. Scores for each are available in the AppSheet search tool.
This list will grow. Any fund whose holdings pass the 50% test qualifies for this sector. If you're researching a fund and want to know whether it belongs here or in a standard GICS sector, check its current sector breakdown — the rule gives you the answer immediately.
The Diversified and Leveraged sectors sit alongside the 11 standard GICS categories in the TGI methodology. The How It Works page covers the full framework.