Introduction

Portfolio diversification is generally thought of in terms of market capitalisation and investment style, yet sector diversification is equally important. Pursuing a growth investment style via internet stocks leads to substantially different portfolios—and results—than pursuing growth via health services stocks.

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, Cyclical, Defensive and Sensitive. Within each of these Super Sectors, three groups for Defensive and four groups for Cyclical and Sensitive are defined for a total of 11 sectors. Industry groups and specific industries within each sector permit further analysis.

The result is a unified system that is applicable to stocks, funds and portfolios.

It allows investors to quickly evaluate the similarities and differences of funds and portfolios by comparing exposure to the three Super Sectors, but also permits further examination of holdings at a very granular level.

Morningstar began using this classification structure October 15, 2010.

For more information, please see the Morningstar Global Equity Classification Structure factsheet.