Q: I've heard the terms "sector" and "industry" used when describing what a company does. Do these mean the same thing?
These terms are often used in similar ways, but there are significant differences.
When it comes to investing, a "sector" refers to companies that operate in a specific portion of the economy. The U.S. stock market can be grouped into 11 different sectors as defined by Standard & Poor's. Consumer discretionary, financials, and energy are just a few examples.
Sectors can be broken down further into "industries," which are groups of companies within each sector that engage in similar business activities. For example, the automobile industry is part of the consumer discretionary sector. (Industries are also commonly referred to as "subsectors.")
All 11 S&P sectors in the U.S. stock market can be further broken down into two to 14 different industries. For example, the materials sector contains five distinct industries: chemicals, construction materials, containers and packaging, metals and mining, and paper and forest products. It's also important to point out that these are S&P's sectors and industries, and that other agencies may have slightly different definitions.
For investors, there are exchange-traded funds (ETFs) available that track each sector, and some that even focus on specific industries, or subsets of companies within each industry. For example, the Financial Select Sector SPDR Fund invests in the financial sector, the SPDR S&P Bank ETF narrows it down to banking institutions, and the SPDR S&P Regional Banking ETF hones its focus even further to regional banking institutions.
