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Market Note – 20180416 Changes to ICB and SA Sector Indices
Market Note: Changes to ICB and SA Sector Indices
FTSE/JSE Africa Index Series
19 March 2018
1. Executive Summary
As a result of enhancements to the FTSE Russell Industry Classification Benchmark, the following changes are
envisaged for the FTSE/JSE Africa Index Series:
* ICB Industry Indices: Replacement of existing 10 industry indices with 11 new indices, with codes and
names representative of the enhanced structure
* ICB Sector Indices: Replacement of existing 40 sector indices with 44 new indices, with codes and
names representative of the enhanced structure
* ICB Sub-Sector Indices: Decommission of 5 existing sub-sector indices
* SA Sector Indices: Definitional changes to SA Sector (Financials, Industrials, Resources), to maintain
existing logical classification.
2. Introduction
The JSE currently uses the Industry Classification Benchmark (ICB) system to classify all listed companies on the
JSE according to Industry, Super Sector, Sector and Sub-Sector. The FTSE/JSE All Share Index (J203) is currently
split into 10 ICB Industry indices, i.e. one for each Industry, and 40 Sector indices, according to the ICB structure.
The ICB structure is also used to define the FTSE/JSE SA Sector Indices (SA Resources, SA Industrials and SA
Financials).
FTSE/JSE published the FTSE Russell Client Consultation for Integrating Industry Classification Structures on the
JSE website, on 20 December 2016. The purpose of the consultation was to solicit client feedback on the
proposed changes to the ICB and Russell Global Sector (RGS) classification structures. The FTSE Russell
consultation closed on 3 March 2017 and FTSE Russell considered all feedback received from market participants
up to this date.
FTSE Russell has designed an enhanced ICB classification system that still uses the four-tiered structure namely,
Industry, Super Sector, Sector and Sub-Sector.
The purpose of this Note is to raise further awareness of the impact that the enhanced ICB structure will have on
the FTSE/JSE Africa Index Series, specifically on the ICB Industry, Sector, Sub-sector and SA Sector Indices, and to
provide market participants the opportunity to raise any concerns as a result of the planned changes set out in
this Note.
JSE Limited Reg No: 2005/022939/06 Member of the World Federation of Exchanges
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3. Enhanced ICB Structure
The ICB structure has been enhanced and expanded and will include 11 Industries (previously 10), 20 Super
sectors (previously 19), 45 Sectors (previously 41) and 171 Sub-sectors (previously 114). ICB will continue to
assign a company to the Sub-sector whose definition most closely coincides with the source of the company’s
revenue or the source of the majority of its revenue.
The new ICB structure combines the best features of the ICB and RGS classification systems, reflects the
evolution across industries and accommodates future ICB expansion beyond the current coverage:
* Both ICB and RGS users will benefit from the enhanced ICB structure, which provides additional
granularity from the Industry through Sub-sector levels.
* The new ICB numeric code system is robust and will accommodate future structural additions or
changes.
* RGS users will shift to ICB’s four-tiered system, gaining an additional interim classification level.
Key changes at the broadest headline level are the addition of Real Estate as an Industry, the expansion of the
Telecommunications Industry and the adoption of Consumer Discretionary and Consumer Staples Industries to
better align with global markets and industry practices.
A comparison between the enhanced ICB, current ICB and current RGS structures at the headline level is shown
in Table 1 below.
ICB (11 Industries) - RGS (9 Sectors) – to be discontinued
ICB (10 Industries) - current
effective 1 January 2019 on 31 December 2018
Technology Technology Technology
Telecommunications Telecommunications
Health Care Health Care Health Care
Financials Financials Financial Services
Real Estate
Consumer Discretionary Consumer Services Consumer Discretionary
Consumer Staples Consumer Goods Consumer Staples
Industrials Industrials Producer Durables
Basic Materials Basic Materials Materials and Processing
Energy Oil and Gas Energy
Utilities Utilities Utilities
Table 1: Comparison of the enhanced ICB, current ICB and current RGS classification structures
The full ICB/RGS Structural Conversion Map and Methodology Overview can be found at the following links:
ICB RGS Structural Conversion Map
ICB Methodology Overview
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4. ICB All Share Indices
4.1 Background
The ICB classification system was implemented on 1 January 2006 on the JSE. Prior to this the FTSE Global
Classification System (GCS) was used to classify companies on the exchange. FTSE/JSE introduced ten ICB
Industry Indices and 38 ICB Sector Indices on 3 January 2006. In November 2009, the number of ICB Sector
Indices in the FTSE/JSE Africa Index Series was increased to 40. This was due to an Alternative Energy sector
being added to the Oil & Gas Industry, as well as the replacement of the Real Estate sector by the Real Estate
Investment & Services sector and Real Estate Investment Trusts sector in 2009.
FTSE/JSE has also introduced Shareholder Weighted (SWIX) variants for all the ICB Industry and Sector Indices on
22 September 2014.
Table 2 below provides a list of the current ICB Industry Indices in the FTSE/JSE Africa Index Series.
Index Code Index Name No of Constituents
J500 Oil & Gas 1
J510 Basic Materials 26
J520 Industrials 20
J530 Consumer Goods 15
J540 Health Care 7
J550 Consumer Services 24
J560 Telecommunication 4
J570 Utilities 0
J580 Financials 65
J590 Technology 3
Table 2: Current Industry Indices
4.2 Upcoming ICB Industry and Sector Indices Changes
FTSE Russell has concluded an enhanced ICB structure that will replace the current ICB classification system on 1
January 2019. FTSE/JSE will continue to offer separate industry indices for each ICB Industry. Due to Real Estate
being carved out of the Financial Industry in the enhanced ICB classification system, there will now be 11 ICB
indices in the index series.
FTSE/JSE will introduce both SWIX and non-SWIX variants for each of the 11 Industry Indices as well as for each
of the Sector Indices, with the exclusion of the Non-equity Investment Instrument Sector. This is due to
companies classified as Non-equity Investment Instruments failing the eligibility criteria for the universe of the
FTSE/JSE Africa Index Series.
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FTSE/JSE will discontinue the current ICB Industry and Sector indices due to structure, name and code changes
under the enhanced ICB structure and simultaneously launch the new ICB Industry and Sector indices with new
names and index codes that correspond to the new ICB structure. Due to the nature of this enhancement, the
current ICB Industry and Sector Indices would not be comparable to the new ICB Industry and Sector Indices
across the entire structure, although many elements are directly comparable. The history of these indices will
not be restated as a result of this change.
A two-way turnover impact from current ICB Industries to enhanced ICB Industries for FTSE/JSE All Share
constituents are shown in section 4.4 using data taken on 1 February 2018.
4.3 ICB Sub-Sector Indices
There are currently five ICB Sub-sector indices under the current Mining Sector, namely:
* FTSE/JSE Gold Mining Index (J150)
* FTSE/JSE Coal Mining Index (J151)
* FTSE/JSE Diamonds & Gemstones Index (J152)
* FTSE/JSE Platinum & Precious Metals (J153)
* FTSE/JSE General Mining (J154)
With the introduction of the enhanced ICB structure, Coal has been classified under the Energy Industry and not
under the Basic Materials Industry as per the current ICB structure. Furthermore, the five sub-sectors
mentioned above forms part of the Mining Sector under the current ICB structure, however in the enhanced ICB
structure the General Mining Sub-sector will fall under the Industrial Metals & Mining Sector and the Diamonds
& Gemstones, Gold Mining and Platinum & Precious Metals Sub-sectors will fall under the Precious Metals &
Mining Sector. Due to these sub-sectors not forming part of one sector anymore, FTSE/JSE will decommission
the five abovementioned ICB Sub-sector Indices following the implementation of the enhanced ICB structure.
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4.4 Impact Analysis ICB Industry Indices
Current ICB Industry
Basic Consumer Consumer Health New ICB
New ICB Industry Financials Industrials Technology Telecommunications
Materials Goods Services Care Grand Total
Basic Materials 20.89% 20.89%
Consumer
8.04% 22.79% 30.83%
Discretionary
Consumer Staples 5.01% 4.14% 9.15%
Energy 0.49% 0.49%
Financials 19.52% 0.02% 19.54%
Health Care 2.81% 2.81%
Industrials 5.13% 5.13%
Real Estate 6.17% 6.17%
Technology 0.22% 0.22%
Telecommunications 4.75% 4.75%
Current ICB Grand
21.39% 13.05% 26.92% 25.69% 2.81% 5.15% 0.22% 4.75% 100%
Total
Table 3: Indicative index weighting changes: two-way turnover impact from current ICB to enhanced ICB – FTSE/JSE All Share Index
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5. SA Sector
5.1 Background
Prior to the launch of the FTSE/JSE Africa Index Series in 2002, all JSE companies were classified by SA Sector as
SA Resources, SA Financials or SA Industrials. With the launch of the FTSE/JSE indices, a new classification
system was introduced, namely the Global Classification System (GCS). At that point the GCS classification was
mapped to the original SA Sector classification, and the two systems were run in parallel. Similarly, when ICB
replaced GCS from 2006, SA Sector was redefined in terms of the ICB sectors and industries.
The SA Sector classification is mapped directly to the current global ICB methodology as follows:
* SA Resources ICB Industries Oil & Gas (0001) and Basic Materials (1000)
* SA Financials ICB Industry Financials (8000)
* SA Industrials All remaining companies.
The FTSE/JSE Africa Index Series contains the following SA Sector Indices:
Index Code Index Name
J257 SA Industrials
J258 SA Resources
J580 Financials
J250 SA Financials and Industrials
J210 Resource 10
J211 Industrial 25
J212 Financial 15
J213 Financial and Industrial 30
J310 Capped Resource 10
J311 Capped Industrial 25
J3EQ Equally Weighted Resource 10
J4EQ Equally Weighted Financial 15
J5EQ Equally Weighted Industrial 25
Table 4: SA Sector Indices
There are also SWIX versions of the above SA Sector Indices with the exception of the J310 and J311 indices.
5.2 Upcoming SA Sector Indices Changes
The SA Sector classification will be mapped to the enhanced ICB structure as follows:
* SA Resources ICB Industries Basic Materials (55) and Energy (60)
* SA Financials ICB Industries Financials (30) and Real Estate (35)
* SA Industrials All remaining companies.
By implementing the aforementioned SA Sector classification mapping, none of the SA Sector Indices will be
decommissioned and all of these SA Sector Indices will remain with the current index codes and index names,
with the exception of the J580 index. The reason for this is due to the fact that the current SA Financials Index
and the Financials ICB Industry Index currently being one and the same index. However due to the ICB
Financials Industry changing to exclude Real Estate the same index cannot be used for both the SA Financials
and Financials Industry anymore. Therefore we would need to distinguish between the FTSE/JSE SA Financials
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Index and the FTSE/JSE Financials Industry Index. Thus the name of the FTSE/JSE Financials Index (J580) will
change to the FTSE/JSE SA Financials Index with the index code, J580, remaining unchanged.
The reason that the impact on the SA Sector Indices will be minimal is due to the SA Resources definition
adopting both the Financials and Real Estate Industries under the enhanced ICB structure, as Real Estate
companies automatically forms part of the current Financials Industry under the current ICB structure.
The SA Sector Indices will also continue to be comparable after implementation of the new SA Sector
classification definition and the impact regarding mandates will be minimal, if any.
6. Raising Concerns
FTSE/JSE has carefully considered the changes to the FTSE/JSE Africa Index Series as a result of the
implementation of the enhanced ICB classification in January 2019.
Should any of the changes to the FTSE/JSE Africa Index Series, that have been presented in this Note, have a
material impact on your business, please provide us with your comments or concerns by Monday, 16 April
2018 to the following email address: indices@jse.co.za
All feedback received by 16 April 2018 will be carefully considered before making any final decisions, and
presented to the FTSE/JSE Advisory Committee Meeting in June 2018. Should any market participant prefer to
have a discussion around the upcoming enhancements to the ICB Industry, Sector, Sub-sector and SA Sector
Indices, please contact indices@jse.co.za directly to arrange a meeting.
This document is not confidential and should be distributed as widely as possible to all stakeholders.
Yours Sincerely,
Indices Department
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