Industry – Definition & Meaning

An industry is a classification that groups public companies with closely related business activities within a broader sector (e.g., the Semiconductors industry inside the Information Technology sector). Industries help investors compare true peers and analyze performance drivers more precisely than at the sector level.

Key Takeaways

• In one sentence: An industry is a subgroup of a sector that clusters companies with similar products, services, and value chains.
• Why it matters: Tighter peer grouping improves valuation comparisons, risk analysis, and stock screening.
• How it’s used: Portfolio construction, benchmarking, factor screens, and idea generation within like-for-like groups.
• Standards: Common taxonomies (e.g., GICS, ICB, TRBC) map sectors → industries → sub-industries.

What Is an Industry?

In equity markets, an industry is a mid-level category below a sector that organizes companies by their primary commercial activity. For example, within the Technology sector, you might find the Semiconductors, Software, and IT Services industries. Classifying at the industry level narrows comparisons to firms with similar demand cycles, cost structures, regulation, and competitive dynamics-leading to better apples-to-apples analysis.

Major classification systems (such as the Global Industry Classification Standard, GICS) define a hierarchy: sectors → industry groups → industries → sub-industries. While naming and depth vary across systems, the purpose is consistent: make company analysis more precise.

How Industries Work (Usage in Portfolios)

Industries serve as building blocks for analysis and positioning:

• Peer benchmarking: Compare margins, growth, and multiples against direct competitors in the same industry.
• Attribution & risk: Performance and risk reports often break out active bets by industry to reveal true drivers.
• Screens & factors: Run valuation, quality, or momentum screens within an industry to reduce structural bias.
• Active tilts: Express cyclical or thematic views at a finer level than sectors (e.g., overweight Aerospace & Defensewhile neutral Industrials overall).
• Indexing & ETFs: Many indices and ETFs track specific industries (e.g., Biotechnology) for targeted exposure.

Mini example

An investor holds a technology-heavy portfolio but wants to limit hardware exposure. They underweight the Technology Hardware, Storage & Peripherals industry while overweighting Application Software, keeping the sector weight similar but shifting industry composition to reflect their thesis.

Benefits and Considerations

Benefits

• Precision: Narrows analysis to true peers for cleaner comparables and model assumptions.
• Targeted exposure: Enables nuanced bets (or hedges) without changing broad sector stance.
• Better diversification control: Avoids hidden concentration in one industry inside a large sector.

Considerations

• Reclassification risk: Industry definitions and company assignments can change over time.
• Conglomerates: Diversified revenue streams may blur a firm’s “primary” industry.
• Liquidity & breadth: Some industries are narrow with fewer investable names or specialized risks (e.g., regulatory exposure in Biotech).

Example of Industry Use in Practice

A healthcare investor favors Managed Care over Healthcare Providers & Services due to anticipated policy shifts. They select insurers with strong medical loss ratio control and price discipline, staying neutral on the Healthcare sector but taking an industry-level tilt to express the view.

Related Terms

• Sector: The broader category above industries (e.g., Healthcare, Technology).
• Sub-Industry: A more granular layer within an industry for ultra-specific peer sets.
• Factor Investing: Combining industry views with factors (value, quality, momentum).
• Thematic Investing: Cross-industry approach built around a theme (e.g., cybersecurity, energy transition).