StockCharts Historical Sector Data

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data:historical_sector_data [2019/07/01 21:26] (current)
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 +====== StockCharts Historical Sector Data ======
  
 +In 2015 and 2018, major changes in sector classifications were implemented by S&P Dow Jones Indices, the company that maintains and publishes the underlying indexes for the popular range of SPDR sector ETFs (XLF, XLK, etc.).
 +
 +Changes to indexes are not uncommon and happen on a regular (quarterly) basis. Depending on the guidelines and the index methodology "rule book," companies will be added to or deleted from an index to better reflect the characteristics of the index as described in the rule book. Market capitalization and company activities are the main factors that determine the sector classification.
 +
 +In 2015 and 2018, however, the changes not only included adding and deleting stocks from various sector indexes, but also an overhaul of the classification structure itself to better reflect the "new world order" which emerged over the last twenty years.
 +
 +These changes to the sector and industry classification structure required similar changes to any indexes or ETFs that track those sectors and industries. This article details the steps that StockCharts took to adjust our sector and industry data to reflect these classification changes.
 +
 +===== GICS Classification Overview =====
 +
 +The GICS classification system, which is maintained by S&P and MSCI, consists of four levels:
 +  * **11 - SECTORS**
 +  * **24 - INDUSTRY GROUPS**
 +  * **69 - INDUSTRIES**
 +  * **158 - SUB-INDUSTRIES**
 +
 +The methodology for classification is bottom-up. This means each stock gets classified to a "​sub-industry"​ based on its principal business activity (which is largely determined by revenue analysis).
 +
 +Based on the sub-industry assignment, a stock can be automatically assigned to a sector. The 158 sub-industries are rolled up into 69 industries. These industries are then rolled up into 24 industry groups, which are themselves ultimately rolled up into the 11 sectors at the top of the hierarchy.
 +
 +==== Indexes vs. ETFs ====
 +
 +Index values are calculated and published for every classification level, with historical data available from the inception of the GICS system. However, these indexes are not investable or tradable products. 
 +
 +Numerous asset managers created investable products based on GICS indexes. The higher the index in the classification hierarchy, the more investable products there are available. The 11 SPDR Sector ETFs have become so popular and widely-traded that they are now often seen as "the sectors."​ However, though they are good proxies for their underlying indexes, they do not match exactly. Based on the management fee alone, an ETF will always marginally underperform its underlying index.
 +
 +As an example, the [[http://​us.spdrs.com/​en/​etf/​technology-select-sector-spdr-fund-XLK|Technology Select Sector SPDR Fund]] (XLK) is not the same as the [[http://​us.spindices.com/​indices/​equity/​technology-select-sector-index|Technology Select Sector Index]] ($IXT). XLK, an ETF, is an investable product that closely tracks an underlying index, in this case $IXT. They are close, but they are not exactly the same.
 +
 +StockCharts offers both the index and the ETF for each of these sectors. The Sector SPDR ETFs are used for many of our sector-based tools, including the [[https://​stockcharts.com/​freecharts/​sectorsummary.html|Sector Summary]] and [[https://​stockcharts.com/​freecharts/​perf.php?​%5BSECT%5D|S&​P Sector ETF PerfChart]].
 +
 +===== Creating Historical Data =====
 +
 +There is plenty of data available for analysis for most of the SPDR family of sector ETFs, as they and their underlying indexes were launched many years ago. The changes in sector indexes and ETFs for Real Estate in 2015 and Communication Services in 2018 required attention because there was very little historical data available for these brand new sectors. The lack of historical data makes it impossible to do the historical comparisons that technical analysts live by.
 +
 +StockCharts used other available data and some math to approximate the historical performance of these new indexes and ETFs as if they had existed for as long as the original sector indexes and ETFs. This allows our users to make those historical comparisons between all sectors, even the new ones.
 +
 +==== Real Estate ====
 +
 +In 2015, [[http://​www.msci.com/​documents/​10199/​6aac98e5-a0f6-485c-ad7c-20394024e07f|S&​P and MSCI decided]] to split the GICS financial sector into two new sectors – Financials and Real Estate. At the same time, a sector SPDR for the new Real Estate sector (XLRE) was launched by State Street.
 +
 +Because Real Estate was an industry group under Financials, this new sector was essentially carved out from the Financials Sector and promoted one level higher in the GICS hierarchy. The historical data for the "​new"​ sector was therefore already available.
 +
 +There is only one small difference in the composition of the old industry group and new sector. The original Real Estate Industry Group included (Equity) REITs, Mortgage REITs and Real Estate Management and Development stocks. The new Real Estate Sector holds only Equity REITs and Real Estate Management and Development stocks. Mortgage REITs stayed in the Financials Sector, under the Diversified Financials Industry Group.
 +
 +In the StockCharts database, we copied the historical index data for the Real Estate Industry Group to the new Real Estate Sector index ($IXRE). This makes it possible to use the Real Estate Sector data in historical comparisons at the index level. ​
 +
 +In order to be able to use the investable XLRE sector ETF in historical comparisons,​ we have used the performance data for the Real Estate Sector Index to simulate the performance of XLRE as if it was trading before October 2015, back-filling the "​history"​ of XLRE assuming a 100% correlation with the underlying index. 
 +
 +Chartists can now use XLRE in longer-term charts, make historical sector performance comparisons and use it in tools like [[https://​stockcharts.com/​freecharts/​perf.php?​%5BSECT%5D|PerfCharts]].
 +
 +//Note: The back-filled data for $IXRE and XLRE prior to the start of the Real Estate sector in 2015 includes mortgage REITs, since it is based on the old Real Estate Industry Group. The historical data for the Financials sector SPDR (XLF) and its underlying index ($IXM) have not been adjusted to exclude equity REITs and/or Real Estate Management and Development stocks prior to the start of the Real Estate sector. Therefore, some Real Estate securities may be represented in both sectors in historical data prior to October 2015.//
 +
 +==== Communication Services ====
 +
 +From a historical data perspective,​ the introduction of the new Communication Services sector in 2018 is a bit more complex, as it is a completely new sector with roots in the old telecom sector. Unlike the Real Estate Sector, there is no historical data whatsoever for the Communication Services Sector.
 +
 +State Street produced [[http://​us.spdrs.com/​docs-commentary/​gics-sector-structure-changes.pdf|a good piece on the "why and how"]] behind the introduction of this new sector as well as the impact on the other sectors. Some big names changed from one sector to another.
 +
 +In order to facilitate the financial markets and enable analysts to use historical data for this new sector, S&P Dow Jones Indices calculated the historical performance for the Communication Services Sector based on the current index methodology for the sector. This means they went back in time with a rule book and created the index composition at each review date. Historical values were then calculated for the new index ($IXC). This newly-created dataset is available [[http://​us.spindices.com/​indices/​equity/​communication-services-select-sector|on S&​P'​s website]].
 +
 +In order to facilitate the use of the XLC sector ETF in long-term charts and other tools on the website, we took a similar route as described for XLRE. Based on the data provided by S&P, we calculated the performance of the new sector index ($IXC) and used this performance data to backfill the historical prices for XLC, assuming a 100% correlation with the underlying index.
 +
 +Chartists can now use XLC and XLRE in longer-term charts, make historical sector performance comparisons and use these tickers in tools like [[https://​stockcharts.com/​freecharts/​perf.php?​%5BSECT%5D|PerfCharts]] and [[https://​stockcharts.com/​freecharts/​rrg/?​s=xlb,​xlc,​xle,​xlf,​xli,​xlk,​xlp,​xlre,​xlu,​xlv,​xly&​b=spy|Relative Rotation Graphs]].
 +
 +
 +===== Conclusion =====
 +
 +The SPDR sectors are an important component of our site organization and market analysis tools. Creating historical data for these two new sectors allows our members to continue to use these tools for their long-term sector-based analysis.