Global Industry Classification Standard (GICS)
What Is the Global Industry Classification Standard (GICS)?
The Global Industry Classification Standard (GICS) is a method for relegating companies to a specific economic sector and industry group that best characterizes its business operations. One of two rival systems are utilized by investors, analysts, and financial experts to compare contending companies.
GICS was developed jointly by Morgan Stanley Capital International (MSCI) and Standard and Poor's. The GICS methodology is utilized by the MSCI indexes, which incorporate U.S. what's more, international stocks, as well as by a large portion of the professional investment management community.
Figuring out GICS
A company's industry classification is key to an investor whose aim is to make a diversified portfolio or to recognize contenders of a company in a similar industry. The highest point of the GICS hierarchy characterizes 11 economic sectors. These are additionally isolated into 24 industry groups, then, at that point, into 68 industries, lastly into 157 sub-industries. Each stock has a code to recognize it at every one of the four of these levels. The 11 sectors are:
- Consumer Discretionary
- Consumer Staples
- Energy
- Materials
- Industrials
- Healthcare
- Financials
- Data Technology
- Real Estate
- Communication Services
- Utilities
A company is assigned GICS classification codes at the sub-industry levels by Standard and Poor's and MSCI as per their definition of the company's principal business.
A company's primary source of revenue is the main factor in deciding its principal business activity. Different factors, like earnings analysis and market insight, are additionally thought of.
Since the GICS's creation in 1999, a number of updates have added, erased, or refined industry groups, sub-industries, and industries. A real estate sector was added in 2016. The telecommunications sector was renamed the communication services sector in 2018. Simultaneously, the sector was expanded to incorporate a few media and diversion interests recently classified under the consumer discretionary sector, as well as a few interactive media and services interests recently classified under the data technology sector.
How GICS Is Used
By and large, in excess of 26,000 stocks worldwide have been classified by GICS, accounting for over 95% of the world's listed market capitalization. GICS is utilized by portfolio managers to recognize and break down stocks and their rivals.
It additionally is utilized for benchmarking the MSCI indexes. Morgan Stanley appraises that more than $14.5 trillion in assets under management are benchmarked to its MSCI indexes, a considerable lot of which are sector-specific.
GICS contends with the Industry Classification Benchmark (ICB) system, which is kept up with by Dow Jones and London's FTSE Group.
The ICB and GICS Systems Are Not Really All that Different
The largest difference among ICB and GICS lies in how consumer businesses are classified at the sector level. With the ICB, companies working with consumers are isolated into suppliers of goods and suppliers of services. With the GICS, companies are marked as cyclical or noncyclical, or between discretionary spending and staples.
At the lower levels, there are more differences, however their impact isn't tremendously huge. For instance, in the ICB, coal companies are found in fundamental materials, however under the GICS these companies are classified in energy. Whether one of the systems is predominant involves preference. The end-client doesn't really have a decision at any rate, as each of the major indexes associate their listed stocks with either.
In practice, a large portion of similar sector and industry assignments exist in both GICS and ICB standards.
Is Classification Out of Date?
In recent years, the importance of GICS and ICB classification has been questioned. A large number of our current economic categories and estimations are products of the Industrial Age, when the companies that were developing and molding the world were monsters with tremendous physical plants and a lot of material products.
The present monsters cross limits among hardware and software and then some. Apple makes telephones and PCs and sells amusement products. Amazon makes hardware, produces diversion programming, sells cloud services, and conveys just about everything. General Electric has interests in NBC, Telemundo, and Universal Pictures.
Pundits contend that now is the ideal time to move from a vertical industry accentuation to one focused on business models all things being equal, by refreshing the Global Industry Classification Standard to mirror the more extensive scope of the present corporate goliaths. New measures and standards would help investors, customers, and employees manage new strategic scenes with greater knowledge.
Features
- GICS systematically recognizes each company by sector, industry group, industry, and sub-industry.
- GICS is utilized by investors and analysts to distinguish, compare, and difference a company's rivals.
- The GICS classification system comprises of four levels. Starting around 2021, there were 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.
