INVESTING | Sectors vs. Industries
A Sector is a broad selection of companies with similar characteristics. An Industry is a subset of Sectors where companies are grouped in more specifically than Sectors. For example, the Consumer Discretionary Sector includes both Ford and Marriott, but Ford is in the Automobile Industry and Marriott is in the Hotels, Restaurants, and Leisure Industry.
Investors can use Sectors and Industries to efficiently classify and compare companies. Comparing companies with shared Sector and Industry allows an investor to identify relative strengths and weaknesses. Comparing companies across different Sectors and Industries can help identify relationships and trends.
Sector and Industry exchange traded funds (ETF’s) provide investors exposure to investments by sectors or industries without the cost and effort associated with researching individual stocks. Using either Sector or Industries, investors can reduce stock-selection risk in executing investment strategies. If, for example, an investor was confident beverage-related businesses were going to perform well overtime, they could purchase one or two large beverage companies, which would expose them to stock-selection risk. However, using either Sectors or Industries, the investor could purchase either a Consumer Staples Sector exchange traded fund (ETF) or a Beverages Industry ETF.
Currently, there are 11 Sectors and over 60 Industries in the S&P 500.