John Spence
S&P Completes Reclassification of U.S. Indexes
John Spence
Tuesday, January 09, 2001
Standard and Poor's (S&P) announced that it has finalized the new classification of its U.S. indexes, shifting to the Global Industry Classification Standard (GICS). The new system was developed by S&P and Morgan Stanley Capital International (MSCI) with the goal of making research and sector comparisons easier for investors and portfolio managers.
Previously, S&P's classification system had two levels of detail: 11 economic sectors and 115 industry groups. The new methodology has four levels of detail: 10 economic sectors, 23 industry groupings, 59 industries, and 123 sub-industries covering almost 6,000 companies globally. To allow investors and financial professionals to adjust to the change, S&P U.S. indexes will be classified under both the existing system and GICS through 2001.
"GICS reflects the profound changes both technology and the global economy are having on the nature of corporations and their business models," said David Blitzer, Chief Investment Strategist and S&P 500 Index Committee Chairman. "In addition, it allows both S&P and MSCI to develop their own competing indices and index products from a common global standard, a move that will enable asset owners, asset managers, and investment research specialists to make seamless comparisons among indices by industry, by region and globally. It is a broad, flexible tool that will enable the investment community to make consistent asset allocation, risk analysis, and portfolio management decisions on a global basis."
A key benefit for investors is that GICS defines groups more precisely and reduces the grouping of unlike companies.
"The issue is straightforward," says Diane Garnick, Equity Derivatives Strategist at Merrill Lynch. "Historically, the index providers have all used different 'theories' to classify companies. This was most problematic during the conglomerate era, and then again during the Internet boom. The bottom line is that these alliances help eliminate investor confusion. Now, when a portfolio manager states that she has a 15% weighting in S&P/MSCI Technology, investors will know exactly which kinds of companies she's holding."
MSCI has included details of the GICS reclassification on its website.
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