S&P SECTOR SWITCHEROO
John Lynch Chief Investment Strategist, LPL Financial | Jeffrey Buchbinder, CFA Equity Strategist, LPL Financial
S&P GICS sectors to undergo a significant makeover later this month. Effective September 28, S&P Dow Jones Indices will make significant changes to its Global Industrial Classification Standard—referred to as GICS. Index provider MSCI will follow with its own updated indices in early December. Reclassifying companies into different sectors may not sound like a big deal, but this one will be quite meaningful—even more so than the addition two years ago this week of real estate as an S&P GICS sector. Here we discuss the implications of creating the new communication services sector and changes to the consumer discretionary and technology sectors.
About three weeks from now, the telecommunication services sector will be greatly expanded and renamed “communication services.” The stocks that will be added to the expanded sector are mostly media and internet companies within the consumer discretionary and technology sectors, with a focus on digital advertising and social media. In fact, after the changes, three of the original four “FANG” stocks (Facebook, Amazon, Netflix, and Google) will be part of the new communication services sector. The information technology sector, which will be impacted most, will see about 5 percentage points trimmed from its current...