Global Industry Classification Standard - Explained
What is the GCIS?
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Table of ContentsWhat is the Global Industry Classification Standard?How does the Global Industry Classification Standard Work? Examining the Usefulness GICS
What is the Global Industry Classification Standard?
The Global Industry Classification Standard (GICS) is a standardized system of categorizing companies into sectors and industries. GICS is used globally by market participants to classify domestic stock and international investment instruments.
GICS has become a global standard used by numerous participants in the investment and financial market and industry. Morgan Stanley Capital International (MSCI) and Standard & Poor's developed GICS in 1999 that is now widely used in the global financial and investment industry. The GICS structure of hierarchy comprises of 11 sectors, 24 industry groups, 69 industries and 158 sub-industries.
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How does the Global Industry Classification Standard Work?
Public companies are categorized using the four hierarchical levels of GICS, these are;
- Industry groups
During the classification of stock, portfolio managers also take into cognizance these hierarchies. Market participants can also follow the standards rules of GICS for asset classification, allocation, and portfolio diversification. A similar standardized classification system is the Industry Classification Benchmark (ICB) which was developed by the London FTSE group and Dow Jones.
Examining the Usefulness GICS
There has been some assessment of the usefulness of the GICS in recent times, given the evolution in industry birthed by technological advancement and innovations. Many have questioned the importance of the GICS as a standardized classification system for companies and industries due to the fact that many companies and industries are developing at a fast pace that the GICS could not possibly catch up with. Change in time also makes the GICS questionable, many companies have evolved such as Apple, Google, ExxonMobil, and others and it is difficult to classify them into significant sectors using the GICS. Hence, it is recommended that the GICS be revised into a model that captures today's business giants and emerging ones.