GICS Change Adds Growth to Financials
Comment of the Day

March 22 2023

Commentary by Eoin Treacy

GICS Change Adds Growth to Financials

This article from Global X may be of interest. Here is a section: 

After the GICS change, Financials will account for roughly 14% of the S&P 500 Index versus its current 11% weight. Information Technology will lose 11 stocks, resulting in the largest reduction in market capitalization among the 11 GICS sectors.2

Reclassification Within FinTech and Impacts on the Financials Sector

Mobile payments and payment processing companies have been the center of a digital revolution in banking, disrupting the traditional banking industry as society has become increasingly cashless. Up until now, some of these FinTech companies have been classified as Data Processing & Outsourced Services within the Information Technology sector. As part of the GICS sector changes, this portion of the FinTech theme will be reclassified to Transaction & Payment Processing Services, a proposed new sub-industry within the Financials sector.

Focusing on the S&P 500 Index, the GICS sector reshuffle will involve eight companies moving from Information Technology to Financials. These firms account for roughly 10% of their present home in the Information Technology sector. Following the GICS changes, the eight payment companies will account for roughly 12% of the Financials sector, based on Bloomberg data as of March 16, 2023. The remaining three firms currently classified as Data Processing & Outsourcing Services will be moved to Industrials under a new sub-industry of Human Resources & Employment Services.

The chart below shows current industry and sub-industry group weights for the Financials sector versus proposed weights by GICS. The new sub-industry, Transaction & Payment Processing Services, is also included.

Eoin Treacy's view

Visa, Mastercard, PayPal, Fiserv, Fidelity National Information Services, Global Payments, FleetCor, and Jack Henry are all now financial services companies according to the GICS sector classification. The net effect is the financial services sector is being beefed up and the information technology sector looks more like a semiconductor and pure tech group now.

The timing of this change also successfully groups more companies together that are directly affected by higher rates and tighten liquidity. Meanwhile the tech sector is more heavily influenced by the emerging AI trend.

The Financials ETF remains in the region of its lows while the Information Tech ETF was breaking higher until today but is looking susceptible to an unwinding of the short-term overbought condition.  

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