What is the Global Industry Classification Standard (GICS)?
The Global Industry Classification Standard (GICS) classifies firms by business operations and economic sector. Investors, analysts, and economists compare firms using one of two methodologies.
MSCI and Standard & Poor’s created GICS. The MSCI indexes comprise U.S. and worldwide companies, and most professional investment managers utilize GICS.
GICS comprehension
A company’s industry categorization helps investors diversify their portfolios or find competitors. The GICS top identifies 11 economic sectors. There are 24 industrial groupings, 68 industries, and 157 sub-industries. Each stock has a code for all four tiers. The 11 sectors are:
- Customer Choice
- Consumer Staples
- Energy
- Materials
- Industrials
- Healthcare
- Financials
- Information Tech
- Real Estate
- Communication Services
- Utilities
Standard & Poor’s and MSCI issue sub-industry GICS categorization codes based on a company’s main business.
Revenue is essential to establishing a company’s main commercial activity. Other aspects include earnings analysis and market perception.
Several updates have added, removed, or improved industrial groupings, sub-industries, and industries since 1999. 2016 saw real estate added. The telecoms industry became a communication service in 2018. The sector also expanded to incorporate certain media and entertainment interests from the consumer discretionary sector and some interactive media and services from the information technology sector.
The Use of Global Industry Classification Standard (GICS)
GICS classifies over 26,000 stocks, representing 95% of the world’s listed market value. GICS helps portfolio managers find and evaluate stocks and rivals.
It also benchmarks MSCI indices. Morgan Stanley believes that over $14.5 trillion in assets under management utilize its sector-specific MSCI indices.
GICS faces competition from Dow Jones and London’s FTSE Group’s Industry Classification Benchmark (ICB) methodology.
The ICB and GICS Systems Are Similar
The sector-level classification of consumer firms is the most significant distinction between ICB and GICS. The ICB divides consumer-facing firms into product and service suppliers. The GICS classifies companies as cyclical, noncyclical, discretionary, or staples.
Lower levels show more significant variances, but their influence is negligible. The ICB classifies coal businesses as basic materials, whereas the GICS classifies them as energy. Which system is best is subjective. All significant indexes affix their listed stocks to one or the other, so end-users have no option.
GICS and ICB share most sector and industry designations.
Is classification outdated?
GICS and ICB categorization have lost importance recently. Many of our economic categories and measurements come from the Industrial Age, when enormous corporations with huge factories and plenty of tangible goods shaped the globe.
Giants today span electronics, software, and more. Apple manufactures phones, computers, and entertainment. Amazon makes products, entertainment, cloud services, and almost everything else. NBC, Telemundo, and Universal Pictures are GE investments.
Criticism suggests changing the Global Industry Classification Standard to reflect the more extensive reach of today’s corporate giants and shifting from a vertical industry to a business model focus. Changing norms and benchmarks would help investors, consumers, and workers understand changing strategic landscapes.
Conclusion
- GICS categorizes companies by sector, industry group, industry, and sub-industry.
- GICS helps investors and analysts analyze a company’s competitors.
- The GICS classification has four levels. In 2021, there were 11 sectors, 24 industry groupings, 69 industries, and 158 sub-industries.
