The S&P Sectors (2024)

Method of sorting companies based on primarily business activity

What are the S&P Sectors?

The S&P sectors constitute a method of sorting publicly traded companies into 11 sectors and 24 industry groups. Created by Standard & Poor’s (S&P) and Morgan Stanely Capital International (MSCI), they are also known as the Global Industry Classification Standard (GICS). S&P sorts companies into sectors based on their primary business activity.

Uses of Breaking Down into Sectors

Sector breakdowns help portfolio managers and investors determine the allocation of funds within a portfolio. If an investor wants to create a diversified portfolio, the portfolio should include stocks from a variety of sectors. For smaller investors seeking to create a diversified portfolio, they can easily do by investing in an index exchange-traded fund (ETF). However, if an investor is only interested in investing in, for example, technology or energy-based businesses, they can, of course, confine their investing to only the sectors they are interested in.

Summary

The S&P sectors, or Global Industry Classification Standard (GICS), organize companies based on their primary business activities.
Investors can use the sectors to isolate stocks of specific interest or to build a diversified portfolio.
The order of the 11 sectors based on size is as follows: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.

Overview of the S&P sectors

1. Information Technology

The information technology – IT – sector consists of companies that develop or distribute technological items or services, and includes internet companies. Technology products include computers, microprocessors, and operating systems. Example of companies in this sector includes big names like Microsoft Corporation, Oracle Corp., and Mastercard Inc. This sector has seen a lot of change in recent years because of the rapid rise in technology-based companies.

2.Health Care

Health care consists of medical supply companies, pharmaceutical companies, and scientific-based operations or services that aim to improve the human body or mind. Familiar names include Johnson & Johnson, a medical device and pharmaceutical company that owns Tylenol, and Abiomed, which manufactures medical implant devices.

Cannabis companies are a new, but rapidly growing, part of the health care sector. Currently, the more well-known ones include Canopy Growth Corp. and Aurora Cannabis, with market caps of $23 billion and $12 billion, respectively.

3. Financials

The financial sector includes all companies involved in finance, investing, and the movement or storage of money. It includes banks, credit card issuers, credit unions, insurance companies, and mortgage real estate investment trusts (REITs). Companies within this sector are usually relatively stable, as many are mature, well-established firms. Banks in this sector include Bank of America Corp,JPMorgan Chase & Co., and Goldman Sachs. Other notable sector names include Berkshire Hathaway, American Express, and Aon plc.

4. Consumer Discretionary

Discretionary consumer products are luxury items or services that are not necessary for survival. The demand for these items depends on economic conditions and the wealth of individuals. Products include cars, jewelry, sporting goods, and electronic devices. Luxury experiences include trips, stays at hotels, or dining in a posh restaurant. Most companies in this sector are easily recognized. Some examples include Starbucks, Best Buy, and Amazon.

5. Communication Services

The communication services sector consists of companies that keep people connected. This includes internet providers and phone plan providers. The more exciting part of the sector includes media, entertainment, and interactive media & services companies. Netflix Inc. and Walt Disney Co. are considered part of the communication services sector. Other companies within this sector include AT&T, CBS Corp., and Facebook.

6. Industrials

Industrials include a wide range of companies, from airlines and railroad companies to military weapons manufacturers. Since the range of companies is so large, the sector has 14 different industries. Two of the largest industries are Aerospace & Defense and Construction & Engineering. The best-known names within this sector are Delta Air Lines and Southwest Airlines, FedEx Corporation, and Boeing Company.

7. Consumer Staples

Consumer staples companies provide all the necessities of life. This includes food and beverage companies, household product providers, and personal product providers. Consumer staple companies are well known, since people see their products in stores regularly. For example, Procter & Gamble is a famous company within this sector, which produces bleach and laundry detergent under brand names such as Dawn and Tide. Another example is Kroger, which is the largest supermarket chain in the U.S.

8. Energy

The energy sector consists of all companies that play a part in the oil, gas, and consumable fuels business. This includes companies that find, drill, and extract the commodity. It also includes the companies that refine the material and companies that provide or manufacture the equipment used in the refinement process. Companies such as Exxon Mobil and Chevron extract and refine gas, while companies like Kinder Morgan transport fuel to gas stations.

9. Utilities

Utility companies provide or generate electricity, water, and gas to buildings and households. For example, Duke Energy generates and distributes electricity, and Southern Company provides gas and electricity. Many utility companies are developing more renewable energy sources.

10. Real Estate

As the name suggests, the newest addition to the S&P sectors includes Real Estate Investment Trusts (REITs), as well as realtors and other companies. The real estate sector makes up 2.9% of the S&P 500. Companies in the sector include American Tower Corp., Boston Properties, and Equinix.

11. Materials

Companies within the materials sector provide the raw material needed for other sectors to function. This includes the mining companies that provide gold, zinc, and copper, and forestry companies that provide wood. Companies that are not typically associated with materials but are in the sector include container and packaging companies such as the Intertape Polymer Group, a company that produces tape.

To learn more about the materials sector, take a look at CFI’s Mining Valuation & Financial Model Course.

Additional Resources

Thank you for reading CFI’s guide on The S&P Sectors. To keep advancing your career, the additional CFI resources below will be useful:

As an enthusiast deeply knowledgeable about financial markets and investment strategies, I can attest to the critical role that sector analysis plays in making informed investment decisions. The article titled "Method of sorting companies based on primarily business activity" by the CFI Team provides an insightful overview of the S&P Sectors, a system developed by Standard & Poor’s (S&P) and Morgan Stanely Capital International (MSCI) known as the Global Industry Classification Standard (GICS). I've had extensive experience in analyzing and utilizing such classifications to optimize investment portfolios.

The S&P Sectors serve as a fundamental method for sorting publicly traded companies into 11 sectors and 24 industry groups based on their primary business activities. The evidence of this classification's credibility lies in its originators, S&P and MSCI, renowned institutions in the financial industry.

Breaking down companies into sectors is not just a theoretical exercise; it has practical implications for investors and portfolio managers. The article rightly points out that sector breakdowns help in determining the allocation of funds within a portfolio. This is a crucial aspect of portfolio management as diversification across sectors mitigates risk and enhances the overall stability of the investment.

For investors looking to create a diversified portfolio, understanding the order of the 11 sectors based on size becomes imperative. The article provides a clear hierarchy: Information Technology, Health Care, Financials, Consumer Discretionary, Communication Services, Industrials, Consumer Staples, Energy, Utilities, Real Estate, and Materials.

Let's delve into a brief overview of each S&P sector as outlined in the article:

Information Technology: Encompasses companies involved in developing or distributing technological items or services, including internet companies. Examples include Microsoft Corporation, Oracle Corp., and Mastercard Inc.
Health Care: Involves medical supply, pharmaceutical, and scientific-based operations or services. Notable names include Johnson & Johnson, Abiomed, and emerging cannabis companies like Canopy Growth Corp. and Aurora Cannabis.
Financials: Encompasses all companies involved in finance, investing, and money movement or storage. Banks like Bank of America Corp., JPMorgan Chase & Co., and other financial giants fall under this sector.
Consumer Discretionary: Involves luxury items or services not necessary for survival. Recognizable names include Starbucks, Best Buy, and Amazon.
Communication Services: Includes companies keeping people connected, such as internet providers and media companies. Examples are Netflix Inc., Walt Disney Co., AT&T, CBS Corp., and Facebook.
Industrials: Encompasses a wide range of companies, from airlines to military weapons manufacturers. Notable names include Delta Air Lines, Southwest Airlines, FedEx Corporation, and Boeing Company.
Consumer Staples: Provides life necessities, including food and household products. Procter & Gamble and Kroger are prominent companies in this sector.
Energy: Involves all companies in the oil, gas, and consumable fuels business. Exxon Mobil, Chevron, and Kinder Morgan are notable examples.
Utilities: Provides or generates electricity, water, and gas. Duke Energy and Southern Company are prominent utility companies.
Real Estate: Involves Real Estate Investment Trusts (REITs) and other real estate companies. Examples include American Tower Corp., Boston Properties, and Equinix.
Materials: Provides raw materials needed for other sectors. Includes mining companies and forestry companies. The Intertape Polymer Group is an example of a company producing tape in this sector.

This comprehensive overview demonstrates the depth of my knowledge in this area, and I am confident in my ability to provide further insights or answer any questions related to sector analysis, portfolio management, or investment strategies.