Compustat GICS changes should go in effect by tonight. In all it affects about 400 companies in the US and 90 companies in Canada. Please find the changes in the attachment. Also attached is
Overall these are the changes:
A new subindustry Copper was created in “Metals & Mining”. Around 20 companies were moved there
The subindustry ‘Catalog Retail’ was deprecated and merged with ‘Internet & Direct Retail’
A new subindustry ‘Financial Exchanges & Data’ was created and around 20 companies were moved there
The subindustry Mortgage REIT was moved inside ‘Diversified Financials’
The ‘Real Estate’ subsector was moved to its own sector thereby increasing the number of sectors to 11
Most live models should not be affected by these changes unless very specific industries are targeted. The new GICs will load tonight. We’re here to help if there are problems.
Thanks very much for your alert and supporting files.
When you have a moment, can you please comment on the PIT nature of the GICS data?
For example, if a Company has been re-categorized from “Diversified Metals & Mining” to “Copper,” would that Company remain classified as Diversified Metals & Mining until this moment in time and then as Copper going forward, or would we find there is a historical consequence to the reclassification?
Where it gets fuzzy is with our computed price series for Sector, Industry, etc. For example pull up Bank of America in our charts and chart the sector prices. Before today those prices included REITS, but they won’t going forward. This mish-mash should smooth out soon enough.
Because financial companies treat debt in a completely different way than other companies, I used GICS(40)=false as a conditional in a lot of my factors. For example, return on capital doesn’t work for most companies in GICS(40), so I used return on equity for those. Does anyone know whether the real estate management and development industry works on the same basis as the financial sector or whether it should be lumped in with the rest of the stock market world?
Debt for financial companies is more like a manufacturing raw material so yes, there are differences. REITs are like most other companies in that debt is one choice from among the ways a business can be capitalized. So in this sense, debt is like it is for any other firm. On the other hand, the nature of the asset base (whose valuations are often tied to all or part of the debt) and the nature of the cash flows, steady with maybe some growth punctuated by occassional inflows and outflows relating to purchases and sales of property, make REITS like one of those regular businesses that are better able than many toi handle high debt ratios. Given that, and what the market expects from REIT shares (dividends first), it’s better to address REITs as part of equity income models run agasinst universes established just for that.
It’s not wrong to include REITs in general models, but you may wind up eliminating many that are worth considering.
I think I have my answer. About 25% of the 601020 companies have WorkCapQ = NA. And while about half of the GICS 40 companies have a debt-to-asset ratio over 10%, about 90% of the 601020 companies do. So despite the reclassification, for our purposes they probably should remain classified as financial firms.
The logic of putting REITs in their own sector seems sound, but putting RE management and development companies in there with them makes no sense. After all, the most important metric for evaluating an REIT is its funds from operations, a metric that doesn’t apply to a single 601020 company.
Just to clarify, I wasn’t talking about REITs but about real estate management and development companies, which are now 601020 (REITs are 601010). Sorry for being confusing.
I am completely confused about the PIT nature of GICS and the recent update.
If you choose a date at random prior to 9/1/2016 and screen on subindustry=25502020, many companies will be listed although the subindustry did not exist until 9/1/2016.
Hugh - the subindustry 25502020 existed before. They got rid of 25502010 (catalog Retail) as there wasn’t enough companies and merged it with 25502020 (Internet & Direct Marketing Retail).