GICS Reclassifies Away From Tech, Again

April 20, 2023 | Catherine Hillier, Research Analyst

This chart description is for illustrative purposes only and its accuracy cannot be guaranteed. Please see full disclosures at end of PDF document in the web post. General description: Column chart showing S&P 500 sector weightings from Dec 31 2022 to Mar 31 2023. Chart subtitle: The Financials and Technology sectors were the most impacted by the latest GICS reclassification. Chart source: Bloomberg as of March 31, 2023. Chart visual description: Y-axis is labeled “S&P 500 Sector Weight” and ranges from 0% to 35%. X-axis shows each of the GICS categories: Comm. Svcs, Cons. Discr, Cons. Staples, Energy, Financials, Health Care, Industrials, Info. Tech., Materials, Real Estate, Utilities. Each category has a column in light blue for 12/31/2022 weighting, darker blue for 3/17/2023, green for 3/20/2023, and light green for 3/31/2023 showing weighting before and after reclassification. Financials and Info. Tech. categories are outlined with orange dashed rectangle to highlight. Chart data description: Most categories are relatively the same; as described in the write-up, however, Financials and Info. Tech. were both adjusted during reclassification. Financials’ weighting went from 11.66% as of 12/31 to 10.28% 3/17 to 13.02% 3/20 and is now at 12.91%. IT went from 25.74% 12/31 to 29.02% 3/17 to 25.76% 3/20 and is now at 26.08%. End chart description. See disclosures at end of document.

The Global Industry Classification Standards (GICS) were established in 1999 by MSCI and S&P Dow Jones Indices to categorize publicly-traded equities. Broadly accepted across the industry, the GICS classification system undergoes an annual review, which has resulted in only 12 updates to the classification system since inception. These updates can have significant impacts on the underlying performance drivers of sectors as well as the concentration of sector-specific indices. The Technology sector has been meaningfully impacted by the two most recent updates. In 2018, GICS broke the Technology sector up to create the Communication Services sector, which includes FAANG stocks Meta, Netflix, and Alphabet. While the update was less consequential this year, it again relocated some of the Tech sector’s largest constituents, increasing its concentration to new highs.

Effective after the close on March 17, 2023, 14 firms were reclassified, impacting five GICS sectors. Notably, Visa and Mastercard, previously two of the five largest Technology companies, along with PayPal, Fiserv, and others, were reclassified as Financials. As a result, the Financials sector is now more exposed to growth factors, including, on the margin, valuation risk from rising rates. The Technology sector, conversely, has become even more concentrated in two mega-cap stocks — Apple and Microsoft. The resultant weighting and concentration changes will impact active manager attribution metrics as well as the exposures achieved via sector-specific ETFs and are important for investors to be aware of. Lastly, while not implemented this year, another key proposal discussed concerned renewable energy companies. These stocks are generally categorized within the Energy and Utilities sectors, and future changes could represent another meaningful shift in GICS classifications.

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The opinions expressed herein are those of Marquette Associates, Inc. (“Marquette”), and are subject to change without notice. This material is not financial advice or an offer to purchase or sell any product. Marquette reserves the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.

Catherine Hillier
Research Analyst

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