How do sectors differ from industries?

Question: I’ve heard the terms “sector” and “industry” used when describing what a company does. Do these mean the same thing?

Answer: 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,” groups of companies within each sector that engage in similar activities. For example, the auto industry is part of the consumer discretionary sector. (Industries are also commonly referred to as “sub-sectors.”)

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 important to point out that these are S&P sectors and industries and that other agencies may have slightly different definitions.

For investors, there are exchangetraded 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 further to regional banking institutions.