The Global Industry Classification Standard® (GICS®) assigns a company to a single business classification according to its principal business activity. This assignment uses quantitative and qualitative factors, including revenues, earnings, and market perception. The sector is the first level of the four-tiered, hierarchical industry classification system that includes 11 sectors, 24 industry groups, 69 industries, and 158 sub-industries.
Within the GICS framework, Materials companies include those that are primarily engaged in:
- Producing and manufacturing chemical products, including industrial chemical products;
- Manufacturing construction materials, containers, and packaging;
- Mining metals and the production of related products; and
- Manufacturing paper and forest products.
The S&P 500® Materials comprises all companies in the S&P 500 that are assigned to the Materials sector by GICS. Created in 1957, the S&P 500 was the first broad U.S. market-cap-weighted stock market index. Today, it is the basis of many listed and over-the-counter investment instruments.
The Materials sector is the smallest by capitalization of the 11 sectors in the S&P 500, representing 2.53% of the index as of May 29, 2020. This compares to 6.04% and 4.95% for the S&P MidCap 400® and S&P SmallCap 600®, respectively. Overall, the Materials sector accounts for 2.72% of (and 146 securities within) the S&P Total Market Index; only the Energy sector (2.70%) accounts for less, by index weight.
With a total float-adjusted market capitalization of USD 641.43 billion, the S&P 500 Materials sector comprised 28 companies as of May 29, 2020. The two largest companies in the sector were Linde plc (LIN) and Ecolab Inc (ECL), with float-adjusted market caps of USD 108.69 billion and USD 53.31 billion, respectively. There were no Materials companies in the top 10 of the S&P 500—Linde plc ranked as the 53rd largest stock, representing 0.43% of the index. The mean market cap of S&P 500 Materials stocks was USD 22.91 billion, the median market cap was USD 13.79 billion, and the lowest market cap was USD 4.23 billion.
The largest five constituents accounted for 48.64% of the weight of the Materials sector, placing it seventh in the S&P 500 in terms of concentration.
Within the S&P 500 Materials, Chemicals was by far the largest industry, accounting for 71.24% of the sector as of May 29, 2020. The remaining sector weight was distributed across the Containers and Packaging (13.13%), Metals and Mining (11.52%), and Construction Materials (4.11%) industries. There were no companies in the Paper and Forest Products industry as of May 29, 2020. The three largest sub-industries were Specialty Chemicals (30.70%), Industrial Gases (25.25%), and Paper Packaging (9.50%)—the first two belong to the Chemicals industry.
A key feature of GICS is that it can evolve: its structure is intended to reflect the current state of the equity investment universe. S&P Dow Jones Indices and MSCI conduct annual reviews to ensure that the structure remains fully representative of the current global market. Although there have been few significant changes to the Materials sector—Chemicals has always been the largest industry, for example—the Paper & Forest Products industry weight in the S&P 500 declined since 1999, from 20% to 0%.