Definition
The Global Industry Classification Standard (GICS) is a financial tool used to classify and sort businesses into different sectors and industries on the basis of the company’s principal business activity. Developed jointly by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P) in 1999, it aids industries worldwide in their financial research and investment process. GICS consists of 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.
Phonetic
Globe-ul In-duhs-tree Classification Stan-dard (GICS)
Key Takeaways
<ol><li>GICS is a system for classifying and categorizing companies by their primary business activity. It’s designed to help investors, researchers, and analysts compare and contrast businesses in specific sectors across different countries.</li><li>It was developed by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P) in 1999. The system is regularly updated to accommodate new business models and sectors, ensuring it remains relevant in a rapidly changing business environment.</li><li>The GICS structure consists of 11 sectors, subdivided into 24 industry groups, 69 industries, and 158 sub-industries. This tiered system allows for greater specificity and precision when classifying businesses, which can aid in creating more comprehensive analysis and comparability across markets.</li></ol>
Importance
The Global Industry Classification Standard (GICS) is significantly important in the world of business and finance for numerous reasons. Developed by MSCI and Standard & Poor’s (S&P), it offers a consistent and comprehensive framework for classifying individual companies into sectors and industries across global markets. This systematic approach provides investors, financial analysts, and economists a tool to accurately compare and analyze performance and trends, conduct thorough sector analysis and forecasting, and develop well-balanced portfolios for investment across geographical borders. Furthermore, it enables businesses to benchmark their performance against competitors both locally and globally, providing critical insights for strategic decision-making.
Explanation
The Global Industry Classification Standard (GICS) serves as an essential tool for investors, research analysts, and fund managers in the global financial community for constructing and managing investment portfolios. Developed by MSCI and S&P Dow Jones Indices in 1999, the primary purpose of GICS is to provide a consistent and accurate framework for classifying individual companies into sectors and industries. This classification system helps in facilitating sector-specific analysis, enabling asset allocation, improving investment research and risk management practices, and fostering a clear view of market trends across various industries. GICS is not just about cataloguing; it plays a pivotal role in ensuring transparency in the financial markets. By categorizing firms into homogeneous groups based on their line of business, it simplifies the comprehension of the market’s structure and its changes over time. An investor or analyst can use GICS to identify and compare companies across international borders, track the performance of individual sectors or industries, gauge economic trends, or develop intricate investment strategies. Thus, GICS serves as a global standard for financial analytics, investment research, and portfolio management.
Examples
1. **Microsoft Corporation**: This tech giant is classified under the “Information Technology” sector of GICS. Inside this sector, it falls within the “Software & Services” industry group, then into the “Software” industry, and finally the “System Software” sub-industry. 2. **Exxon Mobil Corporation**: Using GICS, Exxon Mobil is categorized under the “Energy” sector. Going further into sub-categories, it belongs to the “Energy” industry group, within this group it comes under “Oil, Gas & Consumable Fuels” industry, and finally is a part of the “Integrated Oil & Gas” sub-industry. 3. **Procter & Gamble Co.**: Based on the GICS, this company is part of the “Consumer Staples” sector due to its production of everyday essential goods. From there, we proceed to the “Household Products” industry group. Inside this industry, it is classified under the “Household Products” sub-industry.
Frequently Asked Questions(FAQ)
What is Global Industry Classification Standard (GICS)?
The Global Industry Classification Standard (GICS) is a scheme of classifying every publicly traded company based on its primary business activity. It was created by Morgan Stanley Capital International (MSCI) and Standard & Poor’s (S&P) in 1999.
How are companies classified under GICS?
GICS classification takes a company’s earnings, market profile, and source of revenue into consideration when defining the company’s sector, industry group, industry, and sub-industry.
What is the purpose of GICS?
The purpose of GICS is to provide a consistent, complete framework for research and investment that can accurately capture the breadth, depth, and evolution of industry sectors.
How many sectors does GICS classify?
GICS classifies companies into 11 sectors, which are Energy, Materials, Industrial, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities, and Real Estate.
How does GICS classification benefit investors?
GICS benefits investors by providing a detailed and accurate system for sector analysis, making it easier to identify and compare companies within and across sectors. It also allows better, more systematic asset allocation and portfolio structure, and fosters better understanding of market trends.
Can a company fall under more than one GICS category?
Typically, a company is categorized under one GICS sector and sub-sector based on its largest revenue source. But, it can be further broken down when we move to its industry and sub-industry level.
Where can I find the GICS classification of a company?
The GICS classification of a company can typically be found on financial news and data sites and it is often also provided on the company’s own investor relations page.
Does GICS classification impact share price?
GICS classification itself doesn’t impact share price directly, but investors and market analysts may use GICS as part of their decision-making process, which can indirectly affect stock prices.
Are private companies included in the GICS?
No, GICS is designed for publicly traded companies. Private companies are not classified under this system.
: How often is GICS reviewed and updated?
An annual review of the GICS structure is carried out by MSCI and S&P Dow Jones Indices to ensure it continues to appropriately represent the global markets. Major updates or changes are typically notified in advance.
Related Finance Terms
- Sector: The largest unit within the GICS structure, representing a general economic group of companies.
- Industry Group: One level down from sector, grouping similar economic subsets together in the GICS structure.
- Industry: Two levels down from sector, further subdividing the market for more specific classification.
- Sub-Industry: The smallest and most specific level in the GICS structure, defining very specific economic activities.
- Standard & Poor’s (S&P): Along with MSCI, one of the two creators and distributors of the GICS.
