All companies in the S&P Global family of indices are categorized according to GICS, with each company assigned to a subsector and automatically assigned to the appropriate industry, industry group, and industry sector.
There are currently 34,000 actively traded companies categorized, and the total number exceeds 50,000 if inactive companies are included. The share of global equity market assets that have been classified exceeds 90%.
GICS is a four-tier classification that includes 10 Economic Sectors, 24 Industry Groups, 67 Industries and 147 Sub-Industries.
In 1998, S&P (Standard & Poor) and Merrill Lynch (Merrill Lynch) created the first U.S. industry classification system specifically for the use of index funds, the system has certain defects, so in 2000, Morgan Stanley Capital Investment (Morgan Stanley) and S&P re-examination of the industry classification standard. In 2000, Morgan Stanley Capital Partners and S&P reorganized the new industry classification standards to keep pace with the global economy, and since January 2002, S&P has fully implemented the new global industry classification standards.
The new S&P Global Industry Classification Standard categorizes the constituents of the S&P 1500 Index into 10 industry sectors, 24 industry groups, and 67 industries. The 10 industry sectors are as follows:
Basic materials (Materials)-chemicals, metals mining, paper products, and forest products;
Consumer Unnecessary Consumables (Unnecessary Consume) - automobiles, apparel, leisure and media;
Consumer Frequently Used Consumables (Necessary Consume). Retail sale of household products, food and pharmaceuticals;
Energy - energy facilities, smelting, oil and gas extraction;
Finance - banking, financial services and all insurance
Healthcare (Medical & Health)-operational healthcare services, medical products, pharmaceuticals, and biotechnology;
Industry (Industry)-capital goods transportation, construction, aerospace, and defense;
Information technology (IT) - hardware, software, and communications equipment;
Telecommunications services (Telecom) - Telecommunications services and wireless communications;
Utilities (Utilities) - electric power equipment and natural gas equipment.
Standard & Poor's and MSCI*** jointly classify each company into a single GICS subsector based on the criteria of the company's primary business, and the referenced business must be recognized by both companies***. While profits are an important factor in determining their primary business, profitability analysis and market perception are also important references.
GICS is organized by company. If a subsidiary of a company files a separate financial report with its government reporting agency, the subsidiary is considered a separate entity and will be included in the GICS classification system on a stand-alone basis. Stocks or other issuances that are directly associated with a company will be classified consistently with the company.
The classification of these companies will be re-examined at least once every year and their business behavior will be closely monitored on an ongoing basis. In general, the GICS classification of a company will be adjusted whenever significant business behavior occurs that affects the company's major lines of business. This re-examination, which occurs at least once a year, is to confirm that the GICS definition of a company's business line does not change due to a series of minor events.
[edit]Rationale for the use of the Global Industry Classification Standard
1. A global standard for local markets
GICS provides asset owners, asset managers, and investment research specialists with a uniform standard that allows them to make side-by-side comparisons on a global basis. This advantage not only helps foreign investors gain perspective on local markets, but also helps local investors understand offshore markets, and it helps determine whether stock price fluctuations are regional or global. Moreover, the exhaustive classification of GICS avoids the problem of mixing companies of different nature. This four-tier classification system helps in greater customization and positioning in the creation of portfolios, indices and derivatives.
2. Coverage of Developed and Emerging Markets
GICS covers global markets and is analyzed and compared by two world-class index providers. By covering the entire market, rather than being limited to index constituents, GICS provides more detailed information for indexes and portfolios. The standard now includes more than 34,000 actively traded public companies worldwide, representing 90% of total global equity market assets.
3. Flexibility
The four levels of the GICS structure not only accurately reflect the current global stock market investment environment, but are also flexible enough to capture future trends.
The GICS eight-digit code system can be easily adapted to changes in the investment environment. As the world economy changes, GICS industry sectors, industry groups, industries and sub-sectors are added or subdivided.
4. Effective Analytical Tools
Investors using GICS and related S&P industry indices and data come from all facets of the stock market, including asset management, industry research, portfolio strategy, peer group analysis, and client account reporting, etc. GICS helps market participants to classify and analyze specific portfolios of companies using globally consistent criteria. The global nature of GICS has attracted exchanges around the world to adopt the standard, such as the Toronto Stock Exchange (TSX), the Australian Stock Exchange (ASX), and the Norex Alliance, as well as major international investment organizations such as the Research Information Exchange Markup Language (RIXML). Those currently using the GICS structure for market segmentation include buy-side portfolio managers, institutional and retail brokers, custodian organizations, universities, consultants, and various data providers.