Aligning Stocks to Sectors

For stock analysis, it is important to understand how stocks roll up to sectors or industries (in this context, both words are attempting to say the same thing).  Per this excellent article from Fidelity, there are three main classifications of individual stocks into sectors or industries:

There are three main classification schemas. They are the Global Industry Classification Standard (GICS), the Industrial Classification Benchmark (ICB), and the Thomson Reuters Business Classification (TRBC).  These classification schemas are designed to provide an acceptable and meaningful method for standardizing industry definitions so that comparison and analysis can be conducted between companies, industries, and sectors worldwide, and for creating benchmarks.

I am going to use the same schema used by Vanguard, since it is easy to find reference benchmarks for them (I will use the ETF performance to compare against the performance of our individual stocks against that sector).  Vanguard uses the GICS model, and as such has the following 11 sector ETF’s (and Ticker Symbols).  The GICS indexes are run by McGraw Hill (MCSI).

  1. Consumer Discretionary (VCR)
  2. Consumer Staples (VDC)
  3. Energy (VDE)
  4. Financials (VFH)
  5. Health Care (VHT)
  6. Industrials (VIS)
  7. Information Technology (VGT)
  8. Materials (VAW)
  9. Real Estate (VNQ)
  10. Telecommunications (VOX)
  11. Utilities (VPU)

There are 4 levels in the Global Industry Classification Standard.  You can see a breakdown of them here at Wikipedia.

Often I track the stocks in Google.  In fact, I am migrating everything to Google Sheets.  Google uses the ICB model (Industry Classification Benchmark), which means as you look up individual stocks in Google Finance, you see them categorized according to ICB.  This article describes some of the differences between GIC and ICB.

I am going to continue researching the differences between the two methods.  If I can find simple and representative ICB ETF’s by main sector perhaps I will use them instead of the GIC model because any time you pull up a stock in Google it brings in the ICB information automatically.  Here is a link to a summary of the ICB model as maintained by FTSE (the UK exchange).

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