Industrials Sector

The Industrial sector is one of the ten Global Industry Classification Standard (GICS) sectors. It consists of stocks that relate to producing goods used in construction and manufacturing, and it consists of capital goods, commercial and professional services, and transportation. This sector includes companies involved with defense, aerospace, industrial machinery, tools, lumber, and construction.

The Industrial sector is one of the ten Global Industry Classification Standard (GICS) sectors. It consists of stocks that relate to producing goods used in construction and manufacturing, and it consists of capital goods, commercial and professional services, and transportation. This sector includes companies involved with defense, aerospace, industrial machinery, tools, lumber, and construction.

Performance in the industrials sector largely echoes supply and demand for building construction, whether residential, commercial, or industrial. It also moves in relation to the demand for manufactured products. When an economy contracts and consumers save more and spend less, activity in the industrials sector also tends to contract. The performance of this sector closely follows the performance of the S&P 500.

Composition

The industrials sector has a very wide variety of companies, spanning all sorts of competitive philosophies, growth prospects, exposure to economic cycles, etc. Some of the biggest names in this sector include Caterpillar and Rolls-Royce Holdings, but thousands of other companies crowd this sector. In fact, the diversity of this sector makes it difficult to refer to many behaviors that apply uniformly to all of its areas.

Some companies in the industrials sector can be quite stable, such as those that produce farming equipment. Others can be more subject to cyclical changes, such as builders. As a general rule, those companies that cater to the capital spending and durable goods area of the market tend to be the most cyclical, with companies producing consumer durables a close second.

Investing in the Industrials sector

Given the broad variety of companies that comprise the industrials sector, many investors find companies falling into this category in their portfolios. Given the array of familiar names that list under the industrials sector, many novice investors hold these stocks simply because of their recognition of the business names. Of course, this is not an ideal investment strategy.

Investing in the industrials sector usually requires one to investigate the performance of an individual company versus the sector as a whole. Trends that may affect one part of the sector may have little or no effect on another area. Thus, those who wish to invest in this sector should conduct thorough research, remain vigilant as to the performance of their chosen stocks, and seek the assistance of a financial expert to make the best choices.

A number of mutual funds and exchange-traded funds (ETFs) participate in the industrials sector, either entirely or in part. A broadly diversified fund could focus entirely on this sector given its widely varied nature. Of course, funds spanning multiple sectors usually tend to be safer. These funds also enjoy the benefit of an expert manager’s guidance. The manager has the time and expertise to monitor the individual components of such a fund and will generally generate a better return than an individual investor working alone could generate. The fund will also help to mitigate the investor’s risk of losses, given the volatile nature of some stocks in this sector. Consult with a financial adviser to determine the course of action that is best for a particular set of financial objectives.