The stock market may seem overwhelming when you first start looking at it. There are so many companies listed on it! It can help to break it down into stock market sectors.
Generally, there are 11 main UK stock market sectors.
Splitting the stock market into these sectors can make it easier to compare companies with similar business models. It can also make it easier to spot companies in the sectors you are most interested and/or comfortable with. This can help you decide what to invest in.
So, how do you establish what makes a stock market sector? Let’s take a look.
What is a stock market sector?
A stock market sector is a group of companies on the stock market that share similar qualities.
The Global Industry Classification Standard (GICS) was designed in response to the need for accurate and uniform definitions across the stock market.
The GICS has split stock markets into 11 sectors. These can be further divided into smaller categories. But, for the purpose of this article, we will focus on the 11 main sectors.
The main UK stock market sectors
According to the GCIS these are the 11 main stock market sectors:
- Consumer Discretionary
- Consumer Staples
- Information Technology
- Communication Services
- Real Estate
The energy sector is a broad segment on the London Stock Exchange. It refers to any stocks that involve producing or supplying energy, like oil and gas drilling and refining or power utility companies.
Examples of top UK energy stocks:
The materials sector includes all businesses that either process, develop, or discover raw materials. This includes, but is not limited to chemicals, construction materials, containers, metals and mining, and paper products.
Examples of top UK materials stocks:
The industrials sector refers to companies whose businesses complete at least one of the following activities: the manufacture and distribution of capital goods, including aerospace and defence; construction; engineering and building products; electrical equipment; and industrial machinery.
Examples of top UK industrials stocks:
The utilities sector includes all companies that provide basic and necessary amenities, like water, sewage services, electricity, and natural gas.
Examples of top UK utilities stocks:
The healthcare market segment refers to any companies involved in any healthcare-related activity. These include (but are not limited to) drug manufacturers, medical supply companies and PPE suppliers.
Examples of top UK healthcare stocks:
Simply put, the financial services sector provides financial services to people and corporations. This incorporates a wide range of companies from banks and investment managers to insurance companies, and many more.
Examples of top UK financial services stocks:
The consumer discretionary sector includes all companies operating with non-essential consumer goods and services. This can include luxury goods, hospitality and fashion brands.
Examples of top UK consumer discretionary stocks:
Consumer staples encompasses a broad range of companies. It can include any company manufacturing, buying or selling items like food, drinks, household goods, and hygiene products.
Examples of top UK consumer staples stocks:
The information technology sector includes software and IT services; technology, hardware, and equipment; as well as semiconductors and semiconductor equipment.
Examples of top UK information technology stocks:
The communication services market segment includes companies that transmit data via audio, voice, video, or word around the world. This can include mobile phone companies and telecommunications.
Examples of top UK communication services stocks:
Real estate refers to any companies dealing with property used for residential purposes, commercial, offices, manufacturing, production, distribution, and storage. This includes factories, REITS (real estate investment trusts), and student housing companies.
Examples of top UK real estate stocks:
A stock market sector is a group of listed companies that share similar business activities, or sell similar types of products and services.
Following the GICS principles, there are 11 stock market sectors. However, some have subdivided these into as many as 37 market sectors in the UK.
There is no one sector that is better than the others on the stock market. At times different sectors will outperform the others.
For example, in recent years information technology stocks have performed incredibly well, but now these stocks are falling while commodities are rising.
As it is near impossible to predict market movements, it is generally recommended to have a diversified portfolio and invest across a range of sectors.
Most research platforms allow you to sort companies by market sector. This means, for example, you can view all companies in the healthcare sector at once.
This way you can compare key metrics - like market cap, share price, etc. - easily and see which companies are outperforming their competitors.
You can also look for common trends and themes impacting the specific sector. For example, rising interest rates will have an impact on financial services companies. This will give you an idea of how the sector is performing as a whole - not just individual companies.