The GICS is an accepted framework for investments because:
- It is universal. This is a global classification system applicable in both developed and developing economies.
- It is accurate. It reflects the current state of all industries.
- It is flexible. With 4 increasingly specific divisions, it can identify very specialized subindustries.
- It can change. MSCI and Standard & Poor's review the entire framework annually to ensure that it remains as accurate a reflection of the marketplace as possible. In addition, significant corporate events will trigger a review of an individual company's placement.
The GICS framework
The GICS structure comprises 11 sectors, 24 industry groups, 68 industries, and 157 subindustries. The 11 sectors are:
- Communication services
- Consumer discretionary
- Consumer staples
- Energy
- Financials
- Health care
- Industrials
- Information technology
- Materials
- Real estate
- Utilities
GICS and the S&P 500
The S&P 500 aims to be representative of the industries in the US economy, and sector classification is 1 of the 8 primary criteria considered. Thus, both the accuracy of GICS sectors and the assignment of companies within those sectors contribute to the overall validity of the S&P 500.
The GICS enables Standard & Poor's to develop sector indexes and index products from a common global standard. All S&P indexes, not just the S&P 500, use the GICS structure, creating an entire family of sector-based indexes that offer a global, consistent set of benchmarks.