Coordinated presentations were delivered by Tim Edwards, Ph.D., Managing Director of Index Strategy, S&P Dow Jones Indices, and Saurabh Katiyar, Vice President, MSCI, on the following topics at the 7th Annual Cboe European Risk Management Conference (RMC) on September 13:
- An outline of changes in the Global Industry Classification Standard (GICS) classifications of sector and industry groups
- How sectoral groupings help connect broader trends to their market effects
- Comparing the effectiveness of sector-selection and stock-selection strategies
- Implications for volatility and dispersion trading
The planned upcoming dates for the reconstitution of the sector indexes are September 21 for S&P sector indexes, and December 3 for MSCI sector indexes.
BARRON’S COVER STORY
The September 10, 2018, cover story in Barron’s noted the significance of the sector changes:
“S&P and MSCI are overhauling the taxonomy that categorizes companies into sectors, industry groups, industries, and subindustries. The shift will trigger a migration of hundreds of stocks, with broad market implications. [There will be an] unprecedented overhaul by S&P and MSCI of their Global Industry Classification System, or GICS, a widely used taxonomy that carves up the stock market into sectors, industry groups, industries, and subindustries. The biggest change: A new sector, communication services, is rising from the ashes of the telecommunication-services sector, which will go extinct. …”
Below are key excerpts from the dozens of charts presented by the speakers:
CHART #1 – CHANGES IN U.S.SECTORS SINCE 1900
The weightings for sectors have undergone big changes since 1900. According to the first chart below, the largest sectors were Railroads in 1900 (63%), and Info Tech in 2000 (34%).
CHART #2 – DECLINE OF TELECOM SECTOR
Consolidation and competition reduced the Telecom sector.
CHART #3 – SECTOR WEIGHTS IN 2018; OLD AND NEW
A new sector, Communication Services, will be applied to many key indexes, including the S&P 500 and MSCI ACWI indexes.
CHART #4 – PRODUCTS LINKED TO S&P 500 SECTORS
The chart below shows ETF assets linked to the S&P DJI U.S. equity sector and industry indexes totals more than $160 billion.
Interest in the possibility of a future launch of cash-settled options on U.S. sectors has been expressed by European asset managers who want exposure to U.S. index sectors, but cannot hold physical delivery of exchange-traded product (ETP) options in their funds because of EU regulations around UCITS (Undertakings for the Collective Investment of Transferable Securities).
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