Morningstar divides the stock market into three broad "super sectors," each of which contains four specific industry sectors. Sectors are based on what companies actually do. That is, unlike some standard sector classification systems, sectors aren't based on expected behavior of the stocks of these companies.
4Sector to Super Sector Mapping
Information Super Sector is made up of the Software, Hardware, Media, and Telecommunications sectors. Service Super Sector is made up of the Healthcare, Consumer Services, Business Services, and Financial Services sectors. Manufacturing Super Sector is made up of the Consumer Goods, Industrial Materials, Energy, and Utilities sectors.
Portfolio diversification is generally thought of in terms of market capitalization and investment style, yet sector diversification is equally important. As demonstrated in recent years, pursuing a growth investment style via Internet stocks leads to substantially different portfolios�and results�than pursuing growth via pharmaceuticals.
Standard sector schemes, however, have several drawbacks. One is inconsistency. Most classification systems define some sectors by the types of businesses in which companies are engaged, such as technology or healthcare, and others by the expected behavior of stocks, e.g. consumer cyclical. This method also implies that cyclicality exists in only in certain sectors, and, oddly, technology isn't one of them. Finally, it�s difficult for investors to make any rational comparisons when juggling percentages for 10 or more sectors.
Morningstar is introducing a new sector structure that is more logical, allows for intelligent diversification, and makes it easier to understand the decisions being made by portfolio managers. It divides the stock universe into three major economic spheres or Super Sectors: the Information Economy, the Service Economy, and the Manufacturing Economy. Within each of these Super Sectors, four specific groups are defined for a total of 12 sectors. Industry groups and specific industries within each sector permit further analysis. It also replaces the previous structure�s �technology� classification�which included a broad range of companies with different performance trends�with separate sectors for software, hardware, and telecommunications.
The platform structure is a single, unified scheme with the Morningstar equities universe forming its base. These equities are mapped into their appropriate industries and the industries themselves are mapped into industry groups. These industry groups are then rolled into sectors. Finally the sectors are consolidated into Super Sectors.