Key points
The Global Industry Classification Standard (GICS®) will undergo minor modifications next month, on March 17. So minor in fact, that if you blink, you may miss the event!
Only 14 stocks in the S&P 500® Index will be moving to a new sector. These stocks represent an index weight of just 3.7%.* More than half of this weight will come from just two stocks, Visa and Mastercard.
This year’s changes are quite mild as compared with the wild changes in the most recent GICS revamp in 2018 (see “Hotly Revamped GICS Communications Sector Gets some FAANGs”).
For investors who passively track broad-market capitalization-weighted benchmarks (as many of Aperio’s client do), we believe their portfolios won’t be meaningfully impacted, because the security weights in their benchmarks won’t change. Meanwhile, investors who actively allocate to GICS-based sectors and/or industries via exchange-traded funds (ETFs) may wish to reassess their overall investment allocations given how these changes impact the risk-and-return profiles.
Payment processors and payroll processors are the headline news
Today, many payment processors such as Visa, Mastercard, and PayPal are classified in the Data Processing & Outsourced Services subindustry within the Information Technology sector. Payroll processors such as ADP and Paychex are also classified in the same subindustry.
In March, the payment processors will be moving to a new subindustry, Transaction & Payment Processing Services in the Financials sector, while the payroll processors will be moving to the existing subindustry Human Resources & Employment Services in the Industrials sector.

Figure 1: Fourteen companies in the S&P 500 Index will be changing sectors. Eleven will be leaving Information Technology for either Financials or Industrials. The other three will be shifting from Consumer Discretionary to Consumer Staples.
With the S&P 500 Information Technology sector weight at 27.4%, the departure of 11 stocks from this sector with a combined weight of 3.2% may grab little or possibly no attention from investors.
Other themes beyond the headline news
In addition to the news on the payment processors and the payroll processors, the following changes, while mild, will also be taking place:**
- Retailing will be undergoing some structural changes with some movement between Consumer Discretionary and Consumer Staples as shown above in Figure 1. Also, the subindustry Internet & Direct Marketing Retail is being deleted, and all stocks currently in this subindustry, including Amazon, eBay, and Etsy, will be moving into a new subindustry, Broadline Retail.
- The Thrifts & Mortgage Finance industry is also being deleted, with some stocks moving into a new subindustry, Commercial & Residential Mortgage Finance. The rest of these stocks will move into the existing Regional Banks subindustry.
- Real Estate Investment Trusts (REITs) will see a more granular structure.
- Transportation will also experience some minor rearranging and redefining.
GICS: What & why
GICS was jointly developed in 1999 by two index powerhouses, S&P and MSCI, to replace the outdated industry classification systems that each had previously been using (neither had a Technology sector). Many index and market data providers at the time (and some still today) had developed unique industry classification systems, leading to conflicting classification for many stocks (is Visa a tech firm, financials firm, or commercial services firm? It depends on your system). GICS was the first system to be jointly developed (FTSE and Dow Jones went on to jointly create their Industry Classification Benchmark). Also unique to GICS at the time was its four-tiered structure with subindustries rolling up into industries, which roll up into industry groups, which roll up into 11 sectors today.
Every few years, the GICS team reaches out to the investment community (a “consultation”) to assess whether any part of its structure should be updated to reflect market changes. For example, seven years ago, the GICS team created a new Real Estate sector. Across the global all-cap market, approximately 600 stocks (with many of them small) will have a new classification (in 2018, 3,600 stocks were impacted!).
Risk management
Sector and industry exposures in portfolios are well-known sources of risk. In order for portfolio risk management to understand these risks, contemporary classification systems are needed to reflect our ever-changing economy. Yet, there may be those investors who will react slowly and continue to think of stocks the way they used to be classified. Will they be mismanaging risk?
At Aperio, we utilize equity risk models that are updated daily for our portfolio construction and risk management processes. Thus, as stocks, industries, and sectors evolve, we seamlessly integrate these changes into our investment process.
Impact on Aperio strategies
We do not envision any meaningful impact from these GICS changes on our clients’ portfolios. However, some factor-tilted or values-aligned portfolios may experience a few minor effects.
Because our factor-tilted strategies use “guardrails” on sectors to avoid concentration risk, some portfolios may initially exceed a guardrail with the classification changes. Aperio intends to bring any of these portfolios back in line tax efficiently when these portfolios are next rebalanced.
For values-aligned portfolios, our team is reaching out to any client where we believe any of their industry or ticker exclusions may be worth revisiting given the classification changes. Clients who would like to initiate such a conversation are of course welcome to reach out to us.
To conclude: for clients with Aperio strategies, no action is needed.
Send questions or comments to aperio.blog@blackrock.com.