Definition
The Global Industry Classification Standard (GICS) is a standardized classification system used to assign companies to specific economic sectors and industry groups based on their business operations. Developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor’s, GICS is widely adopted by investors, analysts, and economists to facilitate the comparison and analysis of competing companies.
GICS vs. NAICS Comparison
| Feature | GICS | NAICS |
|---|---|---|
| Purpose | Classification of public companies | Classification of all companies |
| Levels of classification | 4 levels (Sector, Industry Group, Industry, Sub-industry) | 5 levels (Sector, Subsector, Industry Group, Industry, National Industry) |
| Main focus | Mainly public companies | Public and private companies |
| Primary users | Investors, Analysts | Government, Business Analysts |
| Total categories (as of 2021) | 11 Sectors, 24 Industry Groups, 69 Industries, 158 Sub-industries | 20 Sectors, 99 Industry Groups |
Components of GICS Classification
The GICS classification system consists of four distinct levels, as follows:
- Sector: The highest-level categorization. There are 11 sectors, including Technology, Healthcare, Consumer Discretionary, and more.
- Industry Group: A subdivision of sectors. For example, the Technology sector has industry groups like Software and Hardware.
- Industry: A further refinement within industry groups. For instance, under the Software industry group, you might have SaaS (Software as a Service).
- Sub-industry: The most specific category, providing additional detail on companies’ areas of operation. For example, within SaaS, you may classify a company as providing CRM (Customer Relationship Management) solutions.
Related Terms
- Sector Rotation: An investment strategy where investors shift their portfolio allocations among various sectors according to the expected performance of those sectors.
- MSCI Indexes: Stock market indexes that include U.S. and international stocks to gauge the market’s performance, heavily influenced by GICS classifications.
- Peer Analysis: A method used to evaluate industry competitors by comparing their financial performance and other key indicators.
Humor in Finance
“Why did the stock broker bring a ladder to work? Because they were climbing the GICS rankings!” 🪜😂
Fun Fact
Did you know? GICS was introduced in 1999, designed not just for market participants but to help investors see the bigger picture of how industries interact with one another globally!
Frequently Asked Questions
What is GICS used for?
GICS is primarily used for categorizing companies into sectors and industries to simplify comparisons and analysis for investors.
How frequently is GICS updated?
GICS undergoes periodic reviews, generally once a year, to ensure it remains relevant with market changes!
Can private companies be classified using GICS?
GICS mainly classifies publicly traded companies; however, private companies can be classified qualitatively for their industry groupings when needed.
Online Resources
Suggested Reading
- “The Essentials of Financing: The Role of GICS” by Richard H. Johnson
- “Investment Analysis: Techniques and Strategies” by Karl J. Seaquist
Test Your Knowledge: The GICS Challenge
Thank you for delving into the world of GICS! Keep categorizing those companies and may your investment analyses always be top-tier! 📈✨
