What Is an Industry Group?
An industry group is a classification method that groups together individual companies or stocks based on common lines of business.
The Global Industry Classification Standard (GICS), a joint effort by MSCI Inc. and S&P Dow Jones Indices, is regarded as the definitive categorization system for industry groups in the United States. Investors track the performance of stocks across different groups because the fate of one company is often tied to broader trends within the industry.
- 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 such as 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.
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. They claim this is the case because GICS enables market participants to identify and analyze companies using a common global standard.
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.
GICS Industry Groups
The industry groups, along with the other classifications, facilitate understanding among all market participants with a common language. Currently, there are 24 industry groups, which are listed below in alphabetical order:
- Automobiles and Components
- Capital Goods
- Commercial and Professional Services
- Consumer Durables and Apparel
- Consumer Services
- Diversified Financials
- Food, Beverage, and Tobacco
- Food and Staples Retailing
- Health Care Equipment and Services
- Household and Personal Products
- Media and Entertainment
- Pharmaceuticals, Biotechnology, and Life Sciences
- Real Estate
- Semiconductors and Semiconductor Equipment
- Software and Services
- Technology Hardware and Equipment
- Telecommunication Services
Industry Group vs. Market Sector
An industry group is not the same as a market sector. The GICS categorization system includes 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries, indicating that a market sector is typically broader than an industry group. The market sectors under GICS are:
- Communication Services
- Consumer Discretionary
- Consumer Staples
- Health Care
- Information Technology
- Real Estate
Note that some industry groups, including utilities, materials, and energy, are also market sectors. At the same time, it's possible for certain sectors to house a number of different industry groups. For example, the financial sector consists of 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 (ETFs) such as the Energy Select Sector SPDR Fund (XLE), the VanEck Vectors Semiconductor ETF (SMH), and the iShares U.S. Real Estate Fund (IYR).
Other Usages of Industry Group
The term industry group is also used to refer to a group of companies in the same sector that are actively working together to address issues facing their industry. The activities of an industry group may be as basic as publishing or sharing information on trends and new technologies among a small number of members.
Larger industry groups are often more structured professional organizations that can pool member resources for activities such as research and development (R&D), as well as political lobbying in policy areas where there is a shared interest.