GICS® Sector Changes

 
Asset Management, Companies and Industries November 7, 2018

GICS® Sector Changes

The Global Industry Classification Standards (GICS®) is a categorization structure that catalogues companies by industry across eleven major sectors. GICS® went through a major change at the end of September. The Telecommunication Services Sector, a relatively small sector which has traditionally included telecom companies such as AT&T (tkr: T) and Verizon (tkr: VZ), was broadened and renamed “Communication Services.” The Communication Services Sector now includes the existing telecom companies, media companies that were formerly part of the Consumer Discretionary Sector such as Disney (tkr: DIS) and Netflix (tkr: NFLX), and select Information Technology Sector companies, most notably Google parent company Alphabet (tkr: GOOG) and Facebook (tkr: FB).

This is a major change that significantly alters the weightings of the affected sectors. Before the change was made, Telecommunication Services was only 2% of the S&P 500 index. The new Communication Services Sector now makes up 10% of the index, with about 5% coming from the Technology Sector and about 3% coming from the Consumer Discretionary Sector. GICS® first announced the change in November 2017. The change is designed to reflect the “rapid evolution in the way people communicate, access entertainment content and other information,” according to the GICS® website. Media, communication and content have become intertwined over the years through business transitions and company mergers.

Communication over search engines, social media and networking platforms has become more prevalent. Consumption of entertainment has evolved, as people regularly consume video and gaming content over the internet. Telecom companies have made acquisitions in the content space, such as AT&T’s purchase of Time Warner, to capitalize on this transition.

Although this is a substantial change to the GICS® sectors, there should be minimal—if any—near-term impact on the performance of the individual companies that are changing sector assignment.

 

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