| Global Industry Classification Standard 101 |
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| 05/03/2006 | |
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Maureen Maitland, Vice President, Index Analysis and Management at Standard & Poor's, answers this week's 101 on the Global Industry Classification Standard 1- What is the Global Industry Classification Standard? The Global Industry Classification Standard (GICS) is an enhanced industry classification system jointly developed and maintained by Standard & Poor's (S&P) and MSCI in 1999. GICS was developed in response to the global financial community's need for one complete, consistent set of global sector and industry definitions. GICS has become the industry model widely recognized by market participants worldwide. It sets a foundation for the creation of replicable, custom-tailored industry portfolios and enables meaningful comparisons of sectors and industries globally. It has been specifically designed to classify companies globally – in both developed and developing economies. Over 33,500 active, publicly traded companies globally are currently classified and maintained according to the GICS methodology. GICS is designed to meet the needs of the investment community for a classification system that reflects a company's financial performance. Many other systems group companies into classifications designed for tracking GDP and the economy rather than company performance. 2- What is the main difference between a GICS-compliant index and one that is not based on GICS? An index that is GICS-compliant is one that is derived, bottom-up, using GICS as the industry classification methodology; specifically the unique, company-to-issue-level classification as determined by S&P and MSCI. GICS enables S&P, MSCI and any index provider who adopts the system to develop competing sector indices and index products from a common global standard, enabling asset owners, asset managers, and investment research specialists to make seamless comparisons among indices by industry, by region and globally. Standard & Poor's and MSCI jointly assign a company to a single GICS sub-industry according to the definition of its principal business activity as determined by the two companies. Revenues are a significant factor in determining principal business activity; however, earnings analysis and market perception are also important criteria for classification. 3- Why is the GICS important from an institutional investor's viewpoint? Investors use GICS and all related industry indices and data across the full spectrum of equity market investing – including asset management, sector research, portfolio strategy, peer analysis, and client account reporting. The use of GICS enables market participants to identify and analyze a customized group of companies from a common global standard. The use of this global standard helps strategists, analysts, and investors compare companies outside of their local markets and attract capital into local markets when comparing stocks within the same industry. GICS helps market participants determine whether stock movements are locally based or are part of a broader global trend. The GICS methodology has been widely accepted as an industry analysis framework for investment research, portfolio management and asset allocation. Its universal approach to industries worldwide has contributed to transparency and efficiency in the investment process, and the GICS methodology supports the trend towards sector-based investing. The global nature of this system has made it easy for investment professionals worldwide and major stock exchanges, such as the Toronto Stock Exchange (TSX), the Australian Stock Exchange (ASX) and the Norex Alliance, to adopt GICS. |
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Articles of the same Serie : 101 |
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