A strategy whereby investors or portfolio managers increase or decrease holdings in an entire industry, rather than buying or selling individual stocks from that particular industry. For example, an individual investor could take a position in a pharmaceutical fund rather than purchasing the stock of one pharmaceutical company. Industry bets are utilized because many investors believe that it is easier to accurately predict the future price trend of an entire industry, versus the trends of individual stocks.
An industry is a group of corporations that are similar in terms of their primary business activities. Dozens of industry classifications exist, and these are typically grouped into larger categories known as sectors. Examples of industries include pharmaceuticals, railroads, utilities, household and personal products, airlines, insurance, mining, retail, transportation and manufacturing.
Stocks within the same industry often experience correlation in price trends, rising and falling together, as the entire industry is subject to the same underlying factors. The North American Industry Classification System (NAICS) is used by investors to classify corporations. Under the NAICS, which was developed by a joint effort between the United States, Canada and Mexico, companies that employ like production processes are categorized in the same industry. The NAICS replaced the Standard Industrial Classification (SIC) system in 1997.
Investment dictionary. Academic. 2012.
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