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Q&A On The Upcoming GICS Changes

Aug. 07, 2018 3:08 PM ET
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A shakeup in the Global Industry Classification Standard (GICS) after market close on September 28, 2018 is set to have far-reaching implications for portfolio management. First announced at their annual review in November 2017, index providers MSCI and S&P Dow Jones will rename the Telecommunications sector ‘Communications Services.’ The refreshed sector will consist of stocks from the sectors formerly known as Telecoms, Information Technology and Consumer Discretionary. The indexing firms said the changes are intended to improve the categorization of stocks to reflect the changing nature of the global economy.

With these GICS changes right around the corner, Chief Investment Officer, Jon Maier, and Head of Research & Strategy, Jay Jacobs, preview what it could mean for the markets and how investors may need to adjust their investment approach.

What is the rationale for the new GICS classification?

Jon Maier: In 2016, REITs were lifted out from the Financials sector to establish their own Real Estate sector. Before that, the last change was in 1999. People still had VCRs in 1999. So I think it’s fair to say that we’re probably overdue for a more adequate representation of how today’s companies relate to one another and the broader economy.

Jay Jacobs: The other major driving force is that the Informational Technology sector has simply become too big. It’s currently 26.4% of the S&P 500 and in all likelihood would continue to expand given the scale effects of many Tech companies and the sector’s flourishing startup culture.i Once any one sector becomes that large, it shows the sector’s definition has been painted with too broad of a brush and is due for refining.

What is at the core of the changes?

Maier: Evolution and disruption. The VHS days are long gone (DVDs are going fast as well), replaced by technologies that allow us to

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