Bryan Taylor, Chief Economist, Global Financial Data
Global Financial Data has reorganized its sector and industry classification system to make Communications a separate sector. The introduction of the internet 25 years ago has transformed the world and will continue to change the global economy in ways we still cannot predict. Many services which formerly were provided through brick and mortar stores are now provided online. Businesses which formerly were included in Consumer Discretionary, such as Media and Broadcasting or the Internet in Information Technology have more in common with each other than was formerly realized.
A company such as Amazon not only has a huge retail business, but also hosts huge amounts of data on the cloud and provides streaming services for video and music. Netflix not only rents and streams video, but produces its own movies and series, as does Amazon. These changes have caused a re-evaluation of the classification system of industries and sectors by all of the index providers.
Global Financial Data’s classification system is based upon 12 sectors and 72 industries. While most other providers have Sectors and Sub-Sectors, Industries and Sub-Industries, we keep it simple and limit our system to Sectors for the whole economy and the industries that make them up.
GFD’s sectors differ from other index providers because we keep Transportation as a sector rather than making it part of the Industrials as other providers do. GFD focuses on sectors and industries that have existed over the past 200 years, not just the ones that exist today. The Transportation sector laid the foundations of the stock market back in the 1800s and deserves to be recognized for this as a separate sector.
While other index providers periodically rejig their classification system to adjust to new trends in the market and investing, Global Financial Data has created a timeless system that covers over two centuries of sector classification and recognizes industries that no longer exist. Canals and Docks have their own industry because that industry dominated the stock market in England in the early 1800s. Telegraphs, Cables and Express were all important industries in the 1800s, but no longer exist. We don’t delete industries that economic change has eliminated.
GFD’s goal is to create a sector and industry classification that reflects not only the present, but the past, to help its subscribers to analyze the market and determine which sectors and industries outperformed or underperformed the market today or 200 years ago. After all, finding the high alpha stocks and why they had a high alpha is the whole point of analyzing the past.
The Communications Sector has been broken up into several industries. The components of the Communications Sector are Advertising, Broadcasting, Entertainment, Publishing, Internet, Telegraph Cable & Express, Telephones and Retail – Internet and Media.
By making these changes, Communications becomes the second largest sector in the United States after Finance, in part because several of the largest companies in the world, Alphabet, Facebook, Amazon and others are now part of the Communications sector. If you look at only the Telecommunications sector, it represents 4.69% of the total market cap, but the Communications sector represents 12.53%.
GFD will revise the historical data for all of our GFD Indices to reflect these changes. Our Communications Sector Index is a Communications sector index from the 1800s to the 2000s. Other index providers will introduce these changes this year and keep their old indices as they were. S&P’s Communications sector will actually be a Telecommunications sector through 2018 and a Communications sector after that. The reason is the recalculation would affect not only the historical data for Communications, but for Consumer Discretionary and Information Technology as well. Only GFD’s Communications Sector provides true Communications 150 years of true Communications data back to its beginning.
The Communications Revolution has transformed the world and now it is transforming stock market indices. To follow the path of changes in Communications over the past 150 years, GFD’s sector capitalization tool provides the perfect means of analyzing these changes.
Welcome to the communications revolution.
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