Morningstar Global Equity Classification Structure

Morningstar Global Equity Classification is a structure used by Morningstar Inc. for the purpose of creating equity indexes. It is a system that classifies companies into 145 different industries denoted by 8 character codes. This system provides a deeper insight into the equities by using four-tier classification that at the highest level diversifies companies into cyclical, defensive and sensitive super sectors based on how they are affected by the current economies, which helps investors to evaluate the similarities and differences of funds and portfolios.

Metadata

Publisher type Commercial
Publisher(s)
Jurisdictions Global

Structure

Morningstar Global Equity Classification Structure was created by an American financial services firm Morningstar, Inc. with an objective to make decisions made by portfolio managers easier to understand by providing a sector-based portfolio diversification tool. This system divides equities into 145 Industries. Each equity is mapped into an industry that most closely defines it, based on primary and secondary sources.

The Morningstar Equity Global Classification uses a hierarchical four-tier structure with 145 Industries, 55 Industry Groups, 11 Sectors and 3 Super Sectors.

The 11 sectors that this classification represents are:

  • Basic Materials

  • Consumer Cyclical

  • Financial Services

  • Real Estate

  • Consumer Defensive

  • Healthcare

  • Utilities

  • Communication Services

  • Energy

  • Industrials

  • Technology

Each of them is a part of one of three Super Sectors 1 - Cyclical, 2 - Defensive and 3 - Sensitive. Sectors are mapped into Super Sector based on how they are affected by the economy.

History & versions

Version 1 (October 2010)

The first version of Morningstar Global Equity Classification Structure was published in October 2010. It replaced their previous classification structure for global equities, which was primarily based on what type of business the company under classification conducted. The newly introduced MGECS focused on the market the company served. The more comprehensive reasoning behind the change from the previous classification is described in the Changes to Morningstar Global Equity Classification – Q&A document available via Morningstar Advisor. It is linked in the Resources section below. The complete manual to the Version 1 (October 2010) of Morningstar Global Equity Classification Structure can be downloaded directly from Morningstar’s website, linked in the Resources sections.

Version 2 (October 2019)

In July 2019 Morningstar released an updated version of their Global Equity Classification Structure, as a response to market and technology changes. A detailed description of changes between Version 1 from October 2010 and Version 2 from July 2019 is available via Morningstar Advisor in the document linked in the Resources section. The complete manual to the Version 2 (July 2019) of Morningstar Global Equity Classification Structure can be downloaded directly from Morningstar’s website, linked in the Resources section.

Where is it used?

Morningstar Global Equity Classification Structure is mainly used by Morningstar, Inc for the purpose of index construction. Another use of this classification is for the Morningstar, Inc portfolio managers to diversify equities. This makes their decisions easier to understand by their clients. It is also used by investors to evaluate the similarities and differences of funds and portfolios by comparing exposure to the three Super Sectors.

Further resources

Downloads

References