Financial sectors

Many of our direct index strategies invest in companies that offer products or services in various industries that can be categorized into what are called financial sectors. If you choose to invest in an index with multiple financial sectors, you have the option to customize it by excluding sectors you don’t want to invest in based on your personal or financial values. Frec allows you to exclude up to two financial sectors from direct index strategies that have multiple sectors. 

There are eleven (11) different financial sectors that are used as a basis for our indices. The different index providers have selected different standards for the eleven (11) financial sectors, which means you may see some companies in one industry for an S&P index and a different industry for a Russell index. The S&P and CRSP index providers use the Global Industry Classification Standard (“GICS”) for its sector decisions and FTSE Russell uses Industry Classification Benchmark (“ICB”) for its sectors. 

The main difference between GICS and ICB financial sectors lies in how they categorize consumer businesses, with GICS taking a more “market-oriented” approach by grouping companies based on how customers use their products, while ICB uses a “product-oriented” approach, classifying companies based on the products they produce. This difference can lead to companies being assigned to different financial sectors depending on the index that invests in them. For example, the stock GOOGL (Alphabet Inc. A)  is categorized in the Telecommunications Services sector in indices offered by the S&P and CRSP, but categorized as Information Technology in indices offered by Russell. Keep this in mind when you decide to make customizations to your indices. 

Below is a description of each sector:

1. Communication services: made up of companies that facilitate communication and offer related content and information through various mediums. It includes telecom and media & entertainment companies including producers of interactive gaming products and companies engaged in content and information creation or distribution through proprietary platforms.
   
   

2. Consumer discretionary: made up  of companies that tend to be the most sensitive to economic cycles. Its manufacturing segment includes automobiles & components, household durable goods, leisure products and textiles & apparel. The services segment includes hotels, restaurants, and other leisure facilities. It also includes distributors and retailers of consumer discretionary products.
   
   

3. Consumer staples: comprised of companies whose businesses are less sensitive to economic cycles. It includes manufacturers and distributors of food, beverages, and tobacco and producers of non-durable household goods and personal products. It also includes distributors and retailers of consumer staples products including food & drug retailing companies.
   
   

4. Energy:  comprises companies engaged in exploration & production, refining & marketing, and storage & transportation of oil & gas and coal & consumable fuels. It also includes companies that offer oil & gas equipment and services.
   
   
5. Financials:  contains companies engaged in banking, financial services, consumer finance, capital markets and insurance activities. It also includes Financial Exchanges & Data and Mortgage REITs.
   
   
6. Healthcare: includes health care providers & services, companies that manufacture and distribute health care equipment & supplies, and healthcare technology companies. It also includes companies involved in the research, development, production and marketing of pharmaceuticals and biotechnology products.
   
   
7. Industrials: includes manufacturers and distributors of capital goods such as aerospace & defense, building products, electrical equipment and machinery and companies that offer construction & engineering services. It also includes providers of commercial & professional services including printing, environmental and facilities services, office services & supplies, security & alarm services, human resource & employment services, research & consulting services. It also includes companies that provide transportation services.
   
   
8. Information technology: comprises companies that offer software and information technology services, manufacturers and distributors of technology hardware & equipment such as communications equipment, cellular phones, computers & peripherals, electronic equipment and related instruments, and semiconductors and related equipment & materials.
   
   
9. Materials: includes companies that manufacture chemicals, construction materials, forest products, glass, paper and related packaging products, and metals, minerals and mining companies, including producers of steel.
   
   
10. Real estate: contains companies engaged in real estate development and operation. It also includes companies offering real estate related services and Equity Real Estate Investment Trusts (REITs).
    
    
11. Utilities: comprises utility companies such as electric, gas and water utilities. It also includes independent power producers & energy traders and companies that engage in generation and distribution of electricity using renewable sources.