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Sometimes referred to as market segments, market sectors are groups of businesses that produce similar goods and services for sale to consumers. This status places all companies involved in a particular market sector in competition with one another. The term is also used to identify groups of buyers that compete with one another to secure goods and services at the most cost-efficient rates.
The concept of market sectors has a slightly different application when it comes to investing. With both bond markets and stock markets, a sector refers to the classification of the entity that is issuing the security. In this application, it is much more common to hear the class referred to as a market segment, although each term is favored in different places around the world.
Whether used to identify groups of companies that buy or sell products, or issue securities, these sectors are usually classified using what is known as the Global Industry Classification Standard, or GICS. This means of classifying businesses organizes companies into ten broad sectors that are then divided into twenty-four industry groups. Those industry groups are further organized into sixty-eight industries, which in turn are arranged into a total of one hundred fifty-four sub-industries.
The ten basic market sectors as identified by GICS include several sectors that focus on electronic communications. Among these sectors are telecommunications services and information technology. Energy and utilities are also included in this list, along with materials and industrials, as are healthcare and financials. Consumers are represented with two sectors, consumer discretionary and consumer staples.
This comprehensive strategy for classifying businesses can be helpful when seeking investments in different market sectors, since it allows the investor to focus on one particular group or class within a given sector, or diversify the investments across a wider spectrum, while still remaining in the same class or type. By evaluating investments based on sector classes, an investor can get an idea of which sectors exhibit the most promise for growth in both the short-term and the long-term, and choose options that are in line with his or her personal financial goals.
Another application involves using sectors to bring more focus and definition to the sales and marketing process. By targeting specific market sectors, a business is able to build a reputation with certain types of businesses, assuming the business is able to offers products that are highly desirable within those sectors. This may involve identifying a given sector, then focusing on a sub-group within that sector to establish a presence. From there, the marketing effort can branch out to other sub-groups within the sector and make use of references from existing clientele to gain an audience with new prospects.
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