What Is an Industry Group?

An industry group is a classification method for individual companies or stocks that creates groupings based on common lines of business. The Global Industry Classification Standard (GICS), a joint effort by MSCI Inc. and Standard & Poor's (S&P), is regarded as the definitive categorization system for industry groups in the United States. Investors often track the performance of stocks across different groups because the fate of one company is often tied to broader trends within the industry.

Understanding Industry Groups

According to MSCI and S&P, hundreds of asset managers, institutional and retail brokers, custodians, consultants, research analysts, and stock exchanges have adopted GICS. "The use of the GICS enables market participants to identify and analyze companies using a common global standard," the sponsors claim.

Key Takeaways

  • An industry group is a way of grouping individual companies or stocks based on common business lines.
  • GICS categorizes stocks into 24 industry groups and 11 sectors.
  • Market sectors are typically broader than industry groups, but some industry groups like energy and utilities are also market sectors.
  • Compartmentalizing stocks by sector or industry can help investors make sense of market moves and also identify potential investment opportunities.

The sponsors of GICS review the components of its classification system on an annual basis. With an overall evolution of the economy toward technology and knowledge-based industries, changes in the "industries" and "sub-industries" levels are not uncommon. Sometimes "industry groups" can change, as was the case in late 2017, when the sponsors renamed Telecommunication Services as Communication Services in recognition that information and content are now transmitted through many more platform types.

The industry groups, along with the other classifications, facilitate understanding among all market participants with a common language. Currently, there are 24 industry groups, and each (in alphabetical order) is listed below:

  1. Automobiles and Components
  2. Banks
  3. Capital Goods
  4. Commercial and Professional Services
  5. Communication Services
  6. Consumer Durables and Apparel
  7. Consumer Services
  8. Diversified Financials
  9. Energy
  10. Food, Beverage, and Tobacco
  11. Food and Staples Retailing
  12. Health Care Equipment and Services
  13. Household and Personal Products
  14. Insurance
  15. Materials
  16. Media and Entertainment
  17. Pharmaceuticals, Biotechnology, and Life Sciences
  18. Real Estate
  19. Retailing
  20. Semiconductors and Semiconductor Equipment
  21. Software and Services
  22. Technology Hardware and Equipment
  23. Transportation
  24. Utilities

Industry Group vs. Market Sector

An industry group is not the same as a market sector. GICS categorization system includes 11 sectors, 24 industry groups, 68 industries, and 157 sub-industries. Therefore, a market sector is typically broader than an industry group:

  1. Communication Services
  2. Consumer Discretionary
  3. Consumer Staples
  4. Energy
  5. Financials
  6. Health Care
  7. Industrials
  8. Information Technology
  9. Materials
  10. Real Estate
  11. Utilities

Note that some industry groups are also market sectors. For example, utilities, materials, and energy are both industry groups and market sectors. However, some sectors include a number of different industry groups. For example, the financial sector includes banks, insurance, and diversified financials.

Understanding how the various industry groups exist within market sectors can help investors compartmentalize the overall market and make sense of market activity from one day to the next. Some investment vehicles have also been created to participate in stocks by industry group or sector. Examples include exchange traded funds like SPDR Energy Fund (XLE), VanEck Vectors Semiconductor ETF (SMH), and the iShares Trust Real Estate Fund (IYR).