There are 11 stock market sectors, classified by GICS, which stands for Global Industry Classification Standard. These sectors include health care, materials, real estate, consumer commodities, consumer discretion, public services, energy, industry, consumer services, finance and technology. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people achieve financial freedom through our website, podcasts, books, newspaper columns, radio programs and premium investment services. The energy sector encompasses companies that do business in the oil and natural gas industry.
It includes oil and gas exploration and production companies, as well as producers of other consumable fuels such as coal and ethanol. The energy sector also includes related companies that provide equipment, materials and services to oil and gas producers. However, oddly enough, it doesn't include many renewable energy companies, which are instead considered utility companies. The materials industry includes companies that provide various products for use in manufacturing and other applications.
You will find manufacturers of chemicals, construction materials and packaging within the materials sector, along with mining stocks and companies specializing in the manufacture of paper and forest products. The industrial sector encompasses a wide range of different businesses that generally involve the use of heavy equipment. Transportation stocks, such as airlines, railroads and logistics companies, are within the industrial sector, as are companies in the aerospace, defense, construction and engineering industries. Companies that manufacture construction products, electrical equipment and machinery also belong to this sector, as do many conglomerates.
Founded in 1976, Bankrate has a long history of helping people make smart financial decisions. We've maintained this reputation for more than four decades by demystifying the financial decision-making process and giving people confidence in what actions to take next. If you're a stock investor and want to broadly diversify your portfolio, you'll need to own shares in companies in many different parts of the economy. The economy can be divided into sectors, which group stocks with similar commercial characteristics.
The Global Industry Classification Standard (GICS) divides the market into 11 sectors, comprised of 24 industry groups and 69 industries. The commonly used system helps determine how ETFs and mutual funds are constructed. This is how GICS works and its 11 industry rankings, including some of the top companies in each. The GICS system forms the basis for how companies are divided and subdivided, and that division ultimately affects the number of sectoral index funds that are created and which companies are included and excluded from a given index.
The classification system shapes that decision. GICS was developed in 1999 by MSCI and Standard & Poor's, two giants in the financial industry. Below are the 11 industry classifications, which include a description of companies in the sector, as well as some of the largest or most well-known companies. Also included is a popular index fund that allows you to invest in the sector with a low expense ratio.
The energy sector includes companies engaged in the exploration and production of oil and other hydrocarbons, refining, the transportation of oil and gas, and the production of oil and gas equipment. Overall, the sector is mature with modest growth. The materials sector includes companies that produce chemicals, glass, paper, forest products, metals, packaging, building materials and steel. It is usually a mature industry with modest growth potential.
The industrial sector includes companies that manufacture aerospace and defense products, electrical equipment and construction equipment. It also includes companies that provide security services, employment services, professional services and transportation services. This sector may show strong growth during economic booms. The discretionary consumer sector includes companies that produce cars, durable goods, clothing and leisure equipment.
It also includes restaurants, hotels and consumer retail, among others. This sector is sensitive to economic cycles, so when the economy grows, these companies tend to grow much faster, although when it slows down, this industry tends to slow down even more. The consumer commodities sector includes companies that produce food, beverages and tobacco, and non-durable household items, as well as retailers that sell food and drugs, including retail supercenters. This industry tends to be mature with modest growth.
The health sector includes companies that provide health care services, as well as equipment and technology for health care. It includes companies at all stages of pharmaceutical and biotechnological research, development and production. This sector can be dynamic and shows higher growth than the trend, with some companies growing very quickly. The utility sector includes companies that supply electricity, gas and water (from conventional and environmentally friendly sources), as well as energy traders and distributors.
In general, this sector performs slowly and consistently, rather than a growing sector. However, “green energy promises greater returns, albeit with greater risk”. This compensation may affect the way and where products appear on this site, including, for example, the order in which they may appear within the categories of listings. The information technology sector encompasses companies that participate in the different categories of technological innovation.
Sector categorizations are widely used by portfolio managers around the world to help determine the best places to allocate their funds. Sector breakdowns are not only a convenient way to classify companies in the market, but they also make it easier for investors to ensure that they have a well-diversified portfolio. We classify stocks into sectors to make it easier to compare companies that have similar business models. Let's now take a look at the 11 sectors of the stock market classified according to the Global Industrial Classification Standard (GICS) so that you can understand a little more about what these sectors represent.
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