Prior to 2002 the Australian stock market was divided into 24 industry sectors that were unique to Australia. However, to bring the Australian stock market in line with the rest of the world Standard and Poor’s developed and the ASX have implemented a classification system based on Global Industry Classification Standards or GICS.

This system was developed to standardise industry definitions. At time of writing, according to the ASX website the GICS system consists of:

• 10 Sectors
• 24 Industry Groups
• 68 Industry Sub Groups
• 147 Sub Industry Groups

Standard and Poor’s provide a detailed GICS Map which breaks down the Sectors to Industry and Industry Sub Groups which you can download in Excel.

Most modern charting packages allow to you view charts by sector and/or industry group. Some even break down to the Sub Group and Sub Industry group level.

Stock Doctor allows you to undertake fundamental searches on specific groups and sectors.

How can this knowledge benefit you as an investor?

Stan Weinstein in his book ‘Secrets for Profiting in Bull and Bear Markets’ recommends an approach that has stood the test of time which combines Dow Theory and Sector Analysis. (The book was written in 1988 and is still high on the list of recommended reading for investors).

Put very simply, Stan suggests that you identify the trend of the market, then identify the top-performing sectors and finally identify the best stocks from within those sectors.

If you are interested in exploring his approach in more detail you will need to purchase ‘Secrets for Profiting in Bull and Bear Markets‘.

Sector Analysis can be defined as the review and assessment of the current condition and future prospects of a given sector of the economy and can provide the investor with an idea of how well a group of companies in the same sector could be expected to perform as a whole. Generally, a group of stocks within a sector tend to move together because companies within the same industry group are affected in similar ways by market and economic conditions.

How do you identify the top performing sectors?

Each sector can be charted in the same way an ordinary stock can and technical analysis studies can be made of the sector index charts. By reviewing these charts investors can identify better performing sectors and by focusing their research and attention in these areas, theoretically, identify opportunities with a better chance of success than selecting from the broader market.

Having an understanding of the sectors can help you to manage your portfolio risk as well. Ensuring that you are suitably diversified across sectors also helps smooth returns and mitigate against the risk of one sector falling heavily and doing serious damage to your portfolio returns.

Just as the All Ordinaries has the three letter code XAO, the sector indices also have their own unique identifiers. The following is a list of the codes and sector names for you to use when you are searching for charts or researching sector performance: