StyleADVISOR has included a basic set of sector indices since 1997. We are now expanding our coverage of financial sectors with the inclusion of the Salomon Smith Barney global sector indices. This adds more than 5,700 indices to our index database bringing the total indices used in StyleADVISOR to more than 10,000! Concurrently the Prudential sector indices have been discontinued by Prudential and we are eliminating their coverage in StyleADVISOR.

The addition of the SSB Global Sector Indices gives you the ability to examine characteristics of financial sectors in the U.S and worldwide. For an introduction to this we have constructed three new workbooks: USSector, WorldSector and WorldBySector. All are available for download in the Workbooks area of the StyleADVISOR website. Use them as they are or use them to construct your own look at sectors in the U.S. or across the world.

Sector indices are also useful for examining sector specific investment managers or when looking at a manager that you believe may have taken a large sector bet in their overall portfolio. For example, these indices are very useful when observing investment managers that exhibit a low R2 against a style basis that you know to be generally accurate for the investment manager's style.

The SSB Global Equity Index System

Each company in the SSB Global Equity Index (SSBGEI) series is categorized into a six-tier system of sectoral and industry classifications. At the most detailed level, every Index constituent is categorized into one of 682 mutually-exclusive sub industries whose constituents share one or more common influencing factors. These sub-industries are rolled up to form 169 industries, which are in turn combined to create 102 macro-industries. Likewise, these macro-industries form 42 sub-sectors, which then combine to form 12 sectors, ending finally at the four broadest macro-sector groups. The structure allows for the introduction of new industries, as necessary, as well as the discontinuation of obsolete industries, when appropriate.

No "miscellaneous" category exists within this classification scheme. Companies with several business lines are categorized according to a percentage-of-sales rule. The sub-industry classification process begins with a review of publicly available company reports. While some firms produce a unique product or provide a highly specialized service, others pursue multiple lines of business. Constituents of sub-industries are aggregated according to product or service type. An industry has as many sub-industries as deemed appropriate to provide adequate differentiation. The classification system is designed in this manner intentionally, to allow flexibility in the future, should more detailed classifications become appropriate.

All six levels of detail in the industry classification system are organized according to common influencing factors. The process of identifying the sixth level of classification begins with product or service analysis, and, if necessary, segmentation analysis.

The classification process and analysis of common influencing factors is consistent beginning at the inception of the SSBGEI, June 30, 1989. None of the industry groupings or classifications is forward-looking or predictive of the direction of a business enterprise.

For much more information on the Salomon Smith Barney Global Equity Indices, download the SSB Equity Index report (PDF format) or go to: www.ssbgei.com

U.S. Sectors - How have U.S. sectors performed

The SSB sector indices for the U.S allows for a more detailed look than before. For example, Technology can be broken into the following three levels:

Here is a page from our workbook on U.S sectors for technology

World Sectors - How have sectors performed within a country

The World Sector workbook contains 26 pages of information. Each page represents a different country and display 12 sectors with in that country. For each sector we display a rolling 36-month alpha relative to that country's market index. For example, here is the page from Japan showing the performance of each of the sectors versus the broad market index:

World by Sector - How have sectors performed across the world

Performance of a sector in various countries is contained in the workbook World By Sector. Here you can view how a sector, such as technology shown here, has performed globally.

Notice how technology has moved in a similar way across countries. There has been a debate for years about which are more important in determining prices: sectors or countries. This workbook shows that the answer seems to be sectors.

For a detailed discussion of the SSBGEI series, including the sector indices, download this PDF file or go to: www.ssbgei.com

For a copy of the US Sectors workbook go here:
Zephyr Workbooks

For a copy of the World Sectors workbook go here:
Zephyr Workbooks

For a copy of the World By Sector workbook go here:
Zephyr Workbooks

August, 2002

Appendix