Sector Classification (GICS)
The Global Industry Classification Standard (GICS) is a four-tiered hierarchical framework developed jointly by MSCI and S&P Dow Jones Indices in 1999 to categorize publicly traded companies into eleven sectors, twenty-four industry groups, sixty-nine industries, and one hundred fifty-eight sub-industries based on their principal business activity and primary revenue source.
GICS is the dominant sector classification system used in the U.S. equity market. It is used by the S&P 500, MSCI indices, and the majority of institutional investors, asset managers, and research platforms to organize equity universes, construct sector ETFs, compare company peer groups, and measure sector allocation in portfolios and benchmarks.
The eleven GICS sectors are: Energy, Materials, Industrials, Consumer Discretionary, Consumer Staples, Health Care, Financials, Information Technology, Communication Services, Utilities, and Real Estate. Real Estate was separated from Financials and elevated to its own sector in 2016. Communication Services was significantly expanded in 2018 by transferring companies like Alphabet (Google), Facebook (Meta), and Netflix from Information Technology and Consumer Discretionary, reflecting the convergence of telecommunications, media, and internet platform businesses.
The classification hierarchy flows from sector down through industry group, industry, and sub-industry. Each company is assigned a single primary classification at the sub-industry level based on the primary source of revenues for its operating business. This assignment is made by S&P and MSCI jointly and is reviewed annually. A company that generates revenue from multiple segments is classified according to its dominant revenue segment rather than receiving a blended classification.
GICS classifications drive enormous capital flows because sector-based ETFs — products from State Street (Select Sector SPDRs), BlackRock, and Vanguard — are built on GICS sector boundaries. The XLK Technology ETF, for example, includes exactly those S&P 500 companies classified in the GICS Information Technology sector. When GICS reclassifies a company — as it did when it moved major social media companies to Communication Services in 2018 — assets flow out of one sector ETF and into another as index funds and ETFs rebalance.
For analysts and portfolio managers, understanding GICS nuances is essential. The assignment of Amazon to Consumer Discretionary (rather than Information Technology or a platform company category) because retail remains its dominant revenue driver is a commonly cited example of how GICS boundaries do not always align with an investor's intuitive sense of a company's business model. Similarly, Berkshire Hathaway is classified as a Financial, though it is more accurately described as a diversified conglomerate. Being aware of these classification idiosyncrasies prevents miscalibrated sector tilts in portfolio construction.