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Technological advancements are constantly changing the way businesses develop and deliver products and services. Modern companies have not only evolved their business models, they have revolutionized behaviors—Apple changed communication, Amazon changed commerce and Alphabet changed the way we access information.
Yet traditional sector classifications such as GICS tend to group together companies using a backward-looking lens. A company’s and even an economy’s changing dynamics may not be captured.
Anticipating change and challenging the status quo have always been at the heart of iShares’ mission. That’s why we've implemented a new way to classify companies – one that looks where they’re going rather than where they’ve been.
BlackRock’s evolved approach seeks to provide a more representative view of sectors within the U.S. economy by:
The evolved sector approach uses text analysis, guided by machine learning statistical techniques, to identify words and phrases companies use to describe themselves in publicly available materials such as regulatory filings and earnings reports. Companies are grouped into sectors based on similarities in the language each uses when describing their businesses (see Figure 1). In the example below, words in larger font sizes occurred with greater frequency among the listed companies and had greater relevance.
For illustrative purposes only.