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Morningstar® Sector Indexes
Key Attributes
Portfolio diversification is generally thought of in terms of excluded: American Depository Receipts; bulletin market capitalization and investment style, yet sector board stocks; convertible notes, warrants and rights; and diversification is equally important. For example, the tech- nology bubble in the late 1990’s demonstrated that pursuing a growth investment strategy via Internet stocks Liquidity Requirements
leads to substantially different portfolios—and results— Securities that have more than 10 non-trading days in the than pursuing growth via healthcare stocks.
prior quarter or that have average daily trading volume over the preceding six months that falls in the Morningstar Sector Index Family
In 2002, Morningstar introduced a sector classificationsystem that offers a unified and consistent framework for Constituent Weighting
mapping the equity universe based on the underlying Index constituents are weighted according to their free risk. The Morningstar Sector Index family consists of 15 float of shares outstanding. The free float is defined indexes—three Super Sector and 12 Sector indexes— as a company’s outstanding shares adjusted for block that track the U.S. equity market using a consumption- ownership to reflect only shares available for investment.
based analysis of economic sectors in a comprehensive, The types of block ownership that are considered during float adjustment are cross ownership, governmentownership, private ownership, and restricted shares.
Morningstar’s Super Sectors structure represent a uniqueway to classify companies based on the broad Rebalancing & Reconstitution
economic spheres they operate in—manufacturing-, Morningstar rebalances constituent shares and weights service-, and information-based. This intuitive of its sector indexes quarterly in March, June, organization of sectors mimics the way economies evolve September, and December. Immediate rebalancing occurs from dependence on the production of physical if two constituents merge or a company’s free-float products to the delivery of services, which culminates in changes by 10% or more. The indexes are reconstituted (stocks are added or removed from the indexes) twice Index Eligibility
Index constituents are drawn from the available pool of Determining a Stock’s Sector
liquid U.S. domiciled stocks that trade on one of the Driven by the insight and judgment of a team of stock three major exchanges. The following security types are analysts, Morningstar Sector Structure classifies companies engaged in similar lines of business in a three-tier hierarchy.
U.S. Sector Index Family Breakdown
Morningstar Super Sectors
Morningstar Sectors
Each company in the Morningstar® US MarketSM Index is assigned to one of 129 Morningstar industries based on the firm’s primary source of revenue. The indus- tries are mapped into one of 12 sectors. The sectors are organized under one of three Super Sectors—the The result is a unified hierarchical system that allows investors to easily evaluate the similarities and differences of funds and portfolios by comparing exposure 85 ee Super Sectors, while also permitting further examination of holdings at a sector and industry level.
Morningstar® Sector Indexes
Index Definitions
p Business ServicesIncludes advertising, printing, publishing, business h Information Economy Super Sector
support, consultants, employment, engineering Industries that support and facilitate the exchange of and construction, security services, waste management, ideas and information as a basis for commerce.
distributors, and transportation companies. Examplesinclude FedEx, ADP, and Accenture.
r SoftwareCompanies engaged in the design and marketing of computer operating systems and applications. Examples Includes banks, finance companies, money management firms, savings and loans, securities brokers, and insurance companies. Examples include Citigroup, AIG, Manufacturers of computer and communication equipment, semiconductors, and components. Examples k Manufacturing Economy Super Sector
Smokestack industries that process raw materials into physical goods that are sold into industrial and Companies that own and operate broadcast networks and those that create content or provide it to other media companies. Examples include Time Warner and Companies that manufacture or provide food, beverages, household and personal products, apparel, shoes, textiles, autos and auto parts, consumer electronics, luxury goods, packaging, and tobacco. Examples include Companies that provide communication services using Procter & Gamble, Altria, and Coca-Cola.
fixed-line networks or those that provide wireless accessand services. Examples include AT&T and Verizon.
d Industrial MaterialsIncludes aerospace and defense firms, and companies j Service Economy Super Sector
that provide or manufacture chemicals, machinery, Industries whose main source of revenue comes from the building materials, and commodities. Examples include provision of services, not physical products.
Biotechnology, pharmaceuticals, research services, Companies that produce or refine oil and gas, oilfield HMOs, home health, hospitals, medical equipment services and equipment companies, and pipeline opera- and supplies, and assisted living companies. Examples tors. Examples include ExxonMobil and Schlumberger.
include Johnson & Johnson, Pfizer, and Genentech.
Companies that include electric, gas, and water utilities.
Includes retail stores, personal services, homebuilders, Examples include Duke Energy and Exelon.
home supply, travel and entertainment companies, and educational providers. Examples include Wal-Martand Home Depot.
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