On September 25th, a new GICS sector was created. What does that mean?
The Global Industry Classification Standard (GICS), maintained by Standard & Poors and MSCI, is a system for categorizing stocks and other holdings into broad category buckets, such as Energy, Financials, and Health Care. Early this year, they announced that, because of technological trends and industry shifts, certain online marketplaces would be moved from “Information Technology” to “Consumer Discretionary.” Additionally, a new sector would be established; “Communications Services” will replace “Telecommunications.” This new sector will include companies from both the “Consumer Discretionary” and “Information Technology” spaces.
All in all – over 10% of the S&P 500 Index’s market capitalization has been re-classified, easily causing the biggest shift in the sector landscape in the history of GICS.
But what does this mean for you? In the short-term, volatility has increased in the stocks in these sectors. Many managers and passive funds and ETFs that use sectors as a benchmark will have to rebalance their portfolios to accommodate the new sector weightings.