Sector

A classification of companies by what they mainly do. The two schemes in general use, the Global Industry Classification Standard and the Industry Classification Benchmark, each assign a company to exactly one sector based on where the majority of its revenue comes from, then subdivide that sector into industries and sub industries. The assignment is reviewed periodically, and a company whose revenue mix changes is moved.

Sectors are how the composition of an index is described. Each constituent carries a weight, the weights of the constituents in one sector sum to the sector's weight, and a sector's contribution to an index move is its weight multiplied by its return. That is why two indices covering the same country can behave differently in the same week: they carry different sector weights, so the same sector move arrives at a different size in each.

The classification is the trip, because it is made on revenue rather than on how a share behaves. Companies that most readers would describe as technology sit in communication services or consumer discretionary buckets under the standard schemes, so a fund tracking a technology sector index does not hold them. A reclassification also moves a company between indices and between funds on a stated date, which produces trading in the name that has nothing to do with the business.