The sectors are categorized by algorithms, along with artificial intelligence indicators that utilize publicly available data. In the Evolved U.S. Sector classification system, a company’s total market capitalization is assigned to one or more sectors based on the words and phrases used to describe the businesses in the company’s public filings. A company’s weighting in a particular sector is a function of those words and phrases.
“Outdated and backward looking sector classifications are one area where we see incredible opportunity to re-imagine what is possible for investors,” Jeff Shen, Co-Head of Investments for SAE at BlackRock, said in a note. “Our goal with this approach is to bring a nuanced, forward-looking view of each company’s business model and strategic direction, which strengthens investors sector investing options.”
For example, the best example would be Amazon (NasdaqGS: AMZN). The company started as an online retailer focusing on printed books but has since gained significant technology exposure, acquired Whole Foods grocery stores and recently announced plans to tackle healthcare costs. However, the company is still categorized as a consumer discretionary company or retailer.
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