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iShares evolved sector ETFs

Whitepaper:
Evolved sectors for a changing economy

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Whitepaper:
Evolved sectors for a changing economy

Read more

A new way to approach sectors

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.

Case study: Amazon

  • Amazon started as an online retailer selling books, but over time it has expanded to other business with the build-out of Amazon Web Services (AWS), the acquisition of Whole Foods and its recent announcement involving the healthcare market.
  • GICS classification: consumer discretionary
  • Evolved classification: discretionary spending and technology

BlackRock’s evolved sector approach

BlackRock’s evolved approach seeks to provide a more representative view of sectors within the U.S. economy by:

  • Using forward-looking inputs guided by big data analysis
  • Allowing companies to sit in more than one sector
  • Allowing sector constituents to change more frequently than traditional classifications

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.

Figure 1: Text analysis of the words that “innovative healthcare” companies use in describing themselves.

Figure 1: Text analysis of the words that “innovative healthcare” companies use in describing themselves

Names of corresponding companies in the “innovative healthcare” evolved sector

Names of corresponding companies in the “innovative healthcare” evolved sector

For illustrative purposes only.