Index providers Standard & Poor's and MSCI Inc. announced plans last year to reconfigure the telecommunications sector as
communication services, a move that will result in the departure of some well-known companies from some popular consumer
discretionary and technology exchange traded funds.
S&P Dow Jones Indices announced
Thursday that the Communication Services Select Sector Index is ready to go.
“The select sectors are based on the Global Industry Classification
Standard but have different construction rules than the sectors of the S&P 500,” S&P said.
What Happened
Previously, S&P said the new
communications services sector would include “existing telecommunication services companies (as an industry group), but also
aim to reflect the integration of telecom, media and select internet companies, leading to an additional industry group called
Media & Entertainment.”
The new sector updates the definition of integrated and wireless telecom providers as well as movies and publishing sub-industry
groups. Under the media and entertainment umbrella, the new sector makes room for media, entertainment, interactive media and
services and interactive home entertainment providers.
Why It's Important
The new communication services sector will result in the departures of some marquee names from ETFs such as the Consumer
Discretionary Select Sector SPDR (NYSE: XLY) and the
Technology Select Sector SPDR (NYSE: XLK).
Top 10 holdings in the Communication Services Select Sector Index will include Facebook Inc. (NASDAQ: FB), Alphabet Inc. (NASDAQ: GOOGL), Netflix, Inc. (NASDAQ: NFLX) and Walt Disney Co. (NYSE: DIS). Facebook and Alphabet reside in XLK and other tech ETFs, while Disney and
Netflix are currently classified as consumer discretionary names.
“The index has 26 constituents with a total market cap of $2.35 trillion, average market cap of $92.5 billion and median market
cap of $34.9 billion as of May 16, 2018,” said S&P.
What's Next
The new communication services index will allocate nearly 53 percent of its weight to stocks that are currently tech sector
members, with another 36.4 percent devoted to stocks currently in the consumer discretionary sector. The rest are members of the
original telecom sector, including Verizon Communications Inc. (NYSE: VZ) and AT&T Co. (NYSE: T).
The index was backtested back to late 2007 through April 30, 2018.
“The Communication Services Select Sector Index returned a cumulative 143.5 percent through May 16, 2018 with annualized
performance of 14.2 percent over three years, 12.7 percent over five years and 9.9 percent over 10 years,” said S&P.
Related Links:
Quality To The
Core
A
New Blockchain ETF Is Here
© 2018 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.