The stock market is split into 11 sectors under the Global Industry Classification Standard (GICS): Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities and Real Estate. Each company is placed in one sector based on its main business.
You opened a fund's fact sheet and saw a bar chart of percentages next to words like "Industrials" and "Communication Services." Before you can tell whether a portfolio is balanced, you need to know what those labels mean and why a company ends up under one of them.
What is GICS and who maintains it?
GICS is a four-tier classification system developed by MSCI and S&P Dow Jones Indices. According to MSCI's GICS overview, the four tiers are sectors, industry groups, industries and sub-industries, and each company gets one classification in each tier based on its principal business activity.
Revenue is the key factor in deciding that business activity. Earnings and market perception are also considered during the annual review, which means classifications can change over time. MSCI notes that the framework is reviewed every year, and that a 2023 reclassification moved several industries and sub-industries.
Index providers, fund companies and brokerages use GICS, so the same sector names appear almost everywhere.
What are the 11 sectors and what drives each?
The table lists each sector with the kind of company it holds and a main driver. The drivers are general tendencies, not predictions, and every sector can lose value.
| Sector | What it covers | Main drivers | Main risks |
|---|---|---|---|
| Energy | Oil, gas and fuel producers and services | Commodity prices, supply and demand | Price swings, regulation |
| Materials | Chemicals, metals, mining, packaging | Industrial demand, input costs | Cyclical demand, commodity prices |
| Industrials | Aerospace, machinery, transport, construction | Business investment, trade | Economic slowdowns |
| Consumer Discretionary | Retail, autos, restaurants, travel | Consumer confidence and spending | Weak spending, job losses |
| Consumer Staples | Food, beverages, household goods | Steady everyday demand | Slow growth, input costs |
| Health Care | Drugmakers, devices, insurers, providers | Aging, innovation, policy | Regulation, trial failures |
| Financials | Banks, insurers, asset managers | Interest rates, credit quality | Loan losses, rate changes |
| Information Technology | Software, hardware, semiconductors | Corporate spending, innovation | Valuation swings, obsolescence |
| Communication Services | Telecom, media, internet platforms | Advertising, subscriptions | Competition, ad cycles |
| Utilities | Electric, gas and water providers | Regulated rates, steady demand | Rate sensitivity, regulation |
| Real Estate | Property owners and REITs | Rents, occupancy, interest rates | Higher rates, vacancies |
MSCI's own list of the sectors matches these names. The detailed definitions of each sector are on MSCI's GICS definitions pages.
How are the sectors grouped?
Many investors sort the 11 sectors into cyclical, defensive and rate-sensitive groups. This is a common way of thinking and not part of the official standard.
Cyclical sectors
Consumer Discretionary, Industrials, Materials and Energy tend to follow the pace of the economy. When growth is strong, demand rises, and when it slows, earnings often fall faster than in other sectors.
Defensive sectors
Consumer Staples, Health Care and Utilities sell things people buy in most conditions. Their earnings tend to be steadier, though prices can still fall, and they can lag in strong markets. One economic signal analysts watch is the inverted yield curve.
Rate-sensitive sectors
Financials, Real Estate and Utilities are often discussed in terms of interest rates, since borrowing costs and funding costs affect them. The effect can run in either direction depending on the business.
Why does it matter which sector a company is in?
Sectors tell you what a fund or portfolio is really exposed to, which a fund name alone may hide. Two funds can both be called "growth" and have very different sector mixes.
A simple check:
- Open the fund's fact sheet or website and find the sector breakdown.
- Note the largest two or three sectors and what share of the portfolio they hold.
- Ask what happens if those sectors fall together.
- Compare with a broad market fund's breakdown to see where yours differs.
A portfolio heavily weighted in one sector can swing widely even if it holds many stocks. Our guide to index funds shows how a broad fund spreads across sectors, and the P/E ratio guide explains one way valuation differs between them.
What are the limits of sector labels?
A sector label simplifies a company that may do several things. GICS assigns a single classification by principal business activity, so a company with several lines of business appears in only one sector. A company's tier can also change after the annual review.
Sector weights also shift with prices. When one sector's stocks rise, it becomes a larger share of an index without any change in the businesses. This page is educational and does not suggest buying or avoiding any sector. Every sector carries risk, including the possible loss of principal.
Frequently asked questions
How many sectors are in the stock market?
The GICS framework has 11 sectors. Some other providers use different systems with a different number of groups, so check which standard a fund uses.
Who decides which sector a company belongs to?
MSCI and S&P Dow Jones Indices assign classifications under GICS. According to MSCI, revenue is a key factor, and the framework is reviewed annually.
Is technology a sector or an industry?
In GICS it is called Information Technology and is a sector. Within it are industry groups, industries and sub-industries, which are the lower tiers of the system.
Are REITs their own sector?
Real Estate is a GICS sector and includes real estate investment trusts and property companies. Individual REIT businesses vary by property type.
Related: What is an index fund? · What is the P/E ratio? · What is an inverted yield curve?