Monday, September 27, 2010

Changes to Morningstar Global Equity Classifications

Dr. David Krause, AIM program director said, "On the eve of the 5th anniversary of the AIM Equity Fund, I found out today that Morningstar is changing its classifications for equity sectors and industries. This is the classification scheme we have used for the past five years to assign sectors to the student-managers - which is important because we run a sector neutral strategy. We'll adapt to the new classifications which are similar to the S&P GICS scheme."

Morningstar reported today that is enhancing its global equity classification system, beginning at the industry level and extending up to the sector and super-sector level. Morningstar stated that they are making these changes for the following reasons:

  1. Our current sector classification system was created nearly 10 years ago, and since that time, the markets and our clients' needs have evolved. We believe the foundation of the new equity classification system, economic sensitivity of a company's revenues, is a better way to break down the investment universe. 
  2. The new classification system is more intuitive and adds a more global perspective to our research. It also has some important elements in common with the widely used S&P GICS, which simplifies comparison. 
  3. Overall, our revised system is more logical, allows for intelligent diversification, and makes it easier to understand the decisions made by portfolio managers. It presents a robust classification tool in line with both macro-economic factors as well as global market developments.
Broadly speaking, there will be a reduction in the number of Industries and Industry Groups, and a redefinition of the Sectors and Super-Sectors. The new classification system will eliminate 79 current Industries and will introduce 14 new Industries, resulting in 148 Industries. At the Industry Group level, there will be 69 groups rather than the current 91. There will be 11 Sectors under the new system, and they are being redefined based on their economic sensitivity. The number of Super-Sectors will remain at three, but will also be reworked based on sensitivity to economic cycles. Download the new Morningstar global equity classification hierarchy.

The changes will take place according to the following schedule:
  • New Industry Classifications: October 2010
  • New Sectors and Super-Sectors: March 2011