Stock Market Content - Why is Stock Market Content Classified in Sectors and Industries?
Classification of stock market content in sectors and industries helps you analyzing stocks, since it only makes sense to compare stocks within each sector or industry.
The most often used classification of stock market content is to group stocks in sectors and industries. This is especially important when analyzing stocks; it only makes sense to compare stocks within each sector or industry.
Many people are confused in using the terms industry and sector and they often mix them. Both terms have similar meaning, they describe a group of companies that operate in the same segment of the economy or share a similar business type. The only difference between these two terms is in their scope; while the term sector refers to a large segment of the economy, the term industry describes a much more specific group of companies within specific sector. For example, the financial sector can be broken down into industries such as Banks, Insurance, Real Estates and Diversified Financials.
It should be noted that you may find situations in which these two terms are reversed, like with Industry Classification Benchmark (ICB) for example.
Importance of Stock Market Content Classification for Investors
Thomson Reuters Business Classification (TRBC) Structure
Stock market content is classified in economic sectors, business sectors, industry groups and industries.
When analyzing stocks, one of the most often used fundamental approaches is to compare financial ratios among different companies and trying to find undervalued stocks and put them on the list of buying opportunities. Everything is fine with this, but it only makes sense to compare apples with apples and pears with pears, while comparing apples and pears could lead you to erroneous conclusions.
For example, comparing price to earnings ratio (P/E) between Ford (at the time of writing 7.27) and Google (at the time of writing 21.62) doesn't tell you anything about which stock is most likely undervalued. But comparing Ford P/E to Toyota P/E (at the time of writing 50.18) makes sense and looking solely to this ration Ford stocks looks cheaper then Toyota stock; of course, before making final investment decision you have to analyze further, you never make decision based only on one ratio!!!
Different Standards and Classifications
Many different industry classification standards exists and while surfing the web financial portals you will see that stock market content is not classified exactly in the same groups and levels; there are minor differences among them.
You will mostly find one of the following three classifications in global financial community: Thomson Reuters Business Classification (TRBC), Global Industry Classification Standard (GICS) developed by Morgan Stanley Capital International (MSCI) and Standard & Poor's (S&P) or Industry Classification Benchmark (ICB), a classification structure maintained by Dow Jones Indexes and FTSE Group.
Thomson Reuters Business Classification (TRBC)
The Thomson Reuters Business Classification (TRBC) is an industry classification of global companies; it is owned and operated by Thomson Reuters and is also the basis for Thomson Reuters Indices. TRBC uses 4 level classification: Economic Sector, Business Sector, Industry Group, Industry.
| Economic Sector | Business Sector | Industry Group | Industry |
|---|---|---|---|
| Energy | Energy | Coal | Coal |
| Oil & Gas | Integrated Oil & Gas | ||
| Oil & Gas Exploration and Production | |||
| Oil & Gas Refining and Marketing | |||
| Oil & Gas Related Equipment and Services | Oil & Gas Drilling | ||
| Oil-related Services and Equipment | |||
| Oil & Gas Transportation Services | |||
| Renewable Energy | Renewable Energy Equipment & Services | ||
| Renewable Fuels | |||
| Basic Materials | Chemicals | Chemicals | Commodity Chemicals |
| Agricultural Chemicals | |||
| Specialty Chemicals | |||
| Diversified Chemicals | |||
| Mineral Resources | Metals & Mining | Precious Metals & Minerals | |
| Steel | |||
| Aluminum | |||
| Specialty Mining & Metals | |||
| Construction Materials | Construction Materials | ||
| Applied Resources | Paper & Forest Products | Forest & Wood Products | |
| Paper Products | |||
| Containers & Packaging | Non-Paper Containers & Packaging | ||
| Paper Packaging | |||
| Industrials | Industrial Goods | Aerospace & Defense | Aerospace & Defense |
| Machinery, Equipment & Components | Industrial Machinery & Equipment | ||
| Heavy Machinery & Vehicles | |||
| Electrical Components & Equipment | |||
| Heavy Electrical Equipment | |||
| Industrial Services | Construction & Engineering | Construction & Engineering | |
| Diversified Trading & Distributing | Diversified Trading & Distributing | ||
| Commercial Services & Supplies | Environmental Services | ||
| Commercial Printing Services | |||
| Employment Services | |||
| Business Support Services | |||
| Business Support Supplies | |||
| Industrial Conglomerates | Industrial Conglomerates | Industrial Conglomerates | |
| Transportation | Air Freight & Courier Services | Air Freight & Courier Services | |
| Airline Services | Airlines | ||
| Airport Services | |||
| Marine Services | Freight Transportation, Marine | ||
| Marine Port Services | |||
| Transportation, Ground | Passenger Transportation, Ground & Sea | ||
| Freight Transportation, Ground | |||
| Highways & Rail Tracks | |||
| Cyclical Consumer Goods & Services | Automobiles & Auto Parts | Automobiles & Auto Parts | Auto & Truck Manufacturers |
| Auto, Truck & Motorcycle Parts | |||
| Tires & Rubber Products | |||
| Cyclical Consumer Products | Textiles & Apparel | Textiles & Leather Goods | |
| Apparel & Accessories | |||
| Footwear | |||
| Homebuilding & Construction Supplies | Homebuilding | ||
| Construction Supplies & Fittings | |||
| Household Goods | Consumer Electronics | ||
| Appliances, Tools & Housewares | |||
| Home Furnishing | |||
| Leisure Products | Toys & Games | ||
| Recreational Products | |||
| Cyclical Consumer Services | Hotels & Entertainment Services | Hotels, Motels & Cruiselines | |
| Restaurants | |||
| Casinos & Gaming | |||
| Leisure & Recreation | |||
| Media & Publishing | Advertising & Marketing | ||
| Broadcasting | |||
| Entertainment Production | |||
| Publishing | |||
| Diversified Media | |||
| Retailers | Diversified Retail | Department Stores | |
| Discount Stores | |||
| Specialty Retailers | Auto Vehicles, Parts & Service Retailers | ||
| Home Improvement Products & Services Retailers | |||
| Home Furnishings Retailers | |||
| Other Specialty Retailers | |||
| Apparel & Accessories Retailers | |||
| Computer & Electronics Retailers | |||
| Non-Cyclical Consumer Goods & Services | Food & Beverages | Beverages | Brewers |
| Distillers & Wineries | |||
| Non-Alcoholic Beverages | |||
| Food & Tobacco | Fishing & Farming | ||
| Food Processing | |||
| Tobacco | |||
| Personal & Household Products & Services | Personal & Household Products & Services | Household Products | |
| Personal Products | |||
| Personal Services | |||
| Food & Drug Retailing | Food & Drug Retailing | Drug Retailers | |
| Food Distribution & Convenience Stores | |||
| Financials | Banking & Investment Services | Banking Services | Banks |
| Consumer Financial Services | |||
| Specialty Financials | |||
| Investment Banking & Investment Services | Investment Banking & Brokerage Services | ||
| Investment Management & Fund Operators | |||
| Diversified Investment Services | |||
| Specialty Investment Services | |||
| Finanicial & Commodity Market Operators | |||
| Diversified Financial Services | Diversified Financial Services | ||
| Insurance | Insurance | Multiline Insurance | |
| Property & Casualty Insurance | |||
| Life & Health Insurance | |||
| Reinsurance | |||
| Insurance Brokers | |||
| Real Estate | Real Estate Operations | Real Estate Development & Operations | |
| Real Estate Services | |||
| Residential & Commercial REITs | Diversified REITs | ||
| Commercial REITs | |||
| Residential REITs | |||
| Investment Trusts | Investment Trusts | Investment Trusts | |
| Healthcare | Healthcare Services | Healthcare Equipment & Supplies | Advanced Medical Equipment |
| Medical Equipment, Supplies & Distribution | |||
| Healthcare Providers & Services | Healthcare Facilities & Services | ||
| Managed Healthcare | |||
| Pharmaceuticals & Medical Research | Pharamaceuticals | Diversified Pharmaceuticals | |
| Generic & Specialty Pharmaceuticals | |||
| Biotechnology & Medical Research | Biotechnology & Medical Research | ||
| Technology | Technology Equipment | Semiconductors & Semiconductor Equipment | Semiconductors |
| Semiconductor Equipment & Testing | |||
| Communications Equipment | Communications Equipment | ||
| Communications & Office Equipment | Computer Hardware | ||
| Office Equipment | |||
| Software & IT Services | Software & IT Services | IT Services & Consulting | |
| Software | |||
| Telecommunications Services | Telecommunications Services | Telecommunications Services | Integrated Telecommunications Services |
| Wireless Telecommunications Services | |||
| Utilities | Utilities | Electric Utilities | Electric Utilities |
| Natural Gas Utilities | Natural Gas Utilities | ||
| Water & Other Utilities | Water & Other Utilities | ||
| Multiline Utilities | Multiline Utilities |
Source: Thomson Reuters Business Classification (TRBC), 05-26-2010
Written by: Goran Dolenc
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