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Definition: Industry Classification Benchmark – ICB
The Industry Classification Benchmark (ICB) is a system of classification which categorises more than 70,000 companies and 75,000 securities all over the world. It was launched in 2005 by FTSE and Dow Jones jointly. However, it is now solely owned by the FTSE (Financial Times Stock Exchange) International Ltd.
This system of classification enables the users to classify and compare the companies across four levels of classification and national boundaries. The ICB system is mainly supported by the ICB database which is an unparalleled source of data for companies.
It is highly useful for both the types of investors i.e., who look at aggregation (i.e., those who analyse the markets top-down) and those who look at granularity (refers to those who analyse markets bottom-up).
Each company is classified into a particular subsector which is based on the type of its business, revenue drivers and from which sources its major revenues come from.
The four levels of classification are:
a) Subsectors – There are 114 subsectors which allow for detailed analysis
b) Sectors – There are 41 sectors which are used for formulating a broad strategy by the investment managers
c) Super-sectors – There are 19 of them which are highly used by traders
d) Industries – There are 10 broad industries which help to understand about the whole macro-economic environment in general
The 10 broad industries are:
1. Oil & Gas
2. Basic Materials
4. Consumer Goods
5. Health Care
6. Consumer Services
The highlights of the ICB classification are:
• Comprehensive coverage: Covers virtually any security that an investor can come across
• Versatility: Helps in investment analysis as it provides a standard basis for analysis, selection and performance measurement
• Accurate and timely: Highly accurate and hence used in reporting and compliance processes
• Efficient and effective: Removes need for having multiple data sources thus saving huge time and cost