The 11 GICS sectors explained

The Global Industry Classification Standard (GICS) is the system most investors and index providers use to sort listed companies into sectors and industries. It was created in 1999 by MSCI and Standard & Poor's, and today it is maintained by MSCI and S&P Dow Jones Indices. Sectors give you a shared language: they tell you which businesses face similar customers, costs and economic risks, and which peers a company should be compared with.

How GICS is organized

GICS has four levels, from broad to specific: sectors, industry groups, industries and sub-industries. There are 11 sectors. Each company is assigned to one sub-industry, and therefore one sector, based on its principal business activity. Revenue is the primary test, with earnings and how the market perceives the business used as supporting evidence. The number of groups at the lower levels has changed over time as the system was updated.

The structure also changes at the top, occasionally. Real estate became its own sector in 2016, separated from financials. Communication services replaced the older telecommunication services sector in 2018 and absorbed media and internet companies that were previously in consumer discretionary and information technology. In 2023 further updates moved some companies between sectors, for example payment networks such as Visa and Mastercard from information technology to financials. Classifications can change, so a company's sector today may not match an older source.

The 11 sectors

Deeper guides in this series cover information technology, health care and financials, as well as the two consumer sectors and the rest.

Cyclical, defensive and growth groupings

Analysts often group sectors informally by how they respond to the economy. This is a shorthand, and frameworks differ in where they put each sector.

• Cyclical: consumer discretionary, financials, industrials, materials, energy and real estate tend to be more sensitive to the economic cycle.
• Defensive: consumer staples, health care and utilities provide goods and services people need in most conditions, so their earnings tend to be steadier.
• Growth-oriented: information technology and communication services contain many companies whose value rests on expected long-term growth.

No sector is purely one type. Within technology, semiconductors are more cyclical than subscription software, and within health care, devices differ from biotechnology. The groupings describe tendencies, and the exceptions are numerous.

Why sectors matter for analysis

Different businesses need different metrics. Banks and insurers are judged on book value and underwriting results, while debt and cash flow ratios behave differently there than in industrial companies. Software companies are judged on recurring revenue, while retailers are judged on same-store sales and inventory. Comparing across sectors with one metric can mislead.

Peers set the yardstick. A price-to-earnings ratio of 20 means different things in utilities and in software. The principles of comparing with peers are covered in relative valuation and peer multiples.

Risks cluster. Companies in one sector often respond to the same interest rates, regulation or commodity prices, so owning many stocks within one sector gives less diversification than it appears to. See diversification explained.

Weights shift. Sector weights in an index such as the S&P 500 change over time as prices move, and one or two sectors can become a large share of the index. Knowing the weights is part of understanding what an index fund holds.

Limits of classification

• One company, one box. A business with several divisions, such as retail plus cloud computing, must be assigned to a single sub-industry.
• Boundaries blur. Technology now overlaps with finance, media and health care.
• Reclassification. Changes can alter historical sector comparisons.
• Same sector does not mean same quality. Sector peers can vary widely in growth, debt and profitability.

Where to see it on StocksXray

StocksXray ranks every metric as a percentile within the company's own sector, so the X-Ray Score compares a bank with other banks and financials, not with software companies. Fair value also uses sector median multiples as one of its three models, as described in how the X-Ray Score works. Each sector has its own page, and the S&P 500 index page lists the universe.

Key takeaways

• GICS sorts companies into 11 sectors by principal business activity, using revenue as the main test.
• The sector list has changed over time, with real estate separated in 2016 and communication services created in 2018.
• Cyclical and defensive groupings are shorthand for tendencies, with plenty of exceptions.
• Compare companies with sector peers, because the right metrics and normal ranges differ by sector.
• Several stocks in one sector add less diversification than they seem to.