As a result of the re-classifications, plan portfolio performance comparisons against specific sectors within the indexes could be affected, though the securities within the indexes themselves will not change as a result of the reclassification.
However, through 2001 Standard & Poor’s US indices will be classified under both the existing system and GICS to allow users a full year to adjust to changes.
The GICS has four levels of detail:
- 10 economic sectors
- 23 industry groupings
- 59 industries
- 123 sub-industries
By comparison, S&P’s old classification had just two levels of detail, consisting of 11 economic sectors and 115 industry groups.
According to S&P the most obvious change is that there is one less economic sector. Transportation, which has shrunk from 2% to 1/2% of the S&P 500, has been eliminated as a stand-alone sector and subsumed under Industrials in GICS.
In addition, S&P points out that GICS provides a more detailed view of indices and portfolios – defines peer groups more tightly, while avoiding grouping unlike companies together. The two additional classification levels also provide for more customization in building portfolios, indexes and derivative products.
The shift is the first major revision to Standard & Poor’s classification methodology since 1996 when a number of new industries were added.