Market Beat: About that new Communications Services sector
September 26, 2018
There has been a new change to the S&P sectors effective this week. The old Telecommunications sector has been renamed and some new stocks have been added. The new name will be the Communications Services sector.
The S&P is broken down into 11 different sectors according to the GICS, which stands for Global Industry Classification Standard.
Currently, the sectors are; Basic Materials, Communications Services, Consumer Discretionary, Consumer Staples, Energy, Financial Services, Healthcare, Industrials, Real Estate, Technology and Utilities. The addition of the Real Estate Sector is relatively new, previously stocks in the real estate industry were a part of the Financial Sector.
The old Telecommunications Sector was led by companies like AT&T and Verizon. The new Communications Services Sector will include some industry leaders like Facebook, Netflix, Twitter and Alphabet. Alphabet is the parent of Google. Some of these companies were in the Consumer Discretionary Sector and others were in the Technology Sector. The Walt Disney company is also making the switch over to the new sector.
There are 26 stocks from the Consumer Discretionary Sector making the move over to the new Communications Services Sector. They represent a total market capitalization of $2.35 trillion dollars. All the stocks in the Media, Entertainment, Interactive Media & Services and Interactive Home Entertainment sub-industries will now be in the Communications Services Sector.
It's not clear when the sector-based exchange traded funds will be updated for the new changes. The old Telecommunications Sector was relatively conservative with an attractive dividend yield of over 5 percent. The dividend yield will go down now as the new equities are added.
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Hypothetically by back testing the new sector based on the recent additions it would have returned an average annualized performance of 14.2 percent over the last three years, 12.7 percent over the last five years and 9.9 percent over the last 10 years according to data from Standard and Poor's.
If you use sector funds as part of your investment strategy, now might be a good time to review your allocations to the different sectors and adjust for the changes. The Technology Select Spyder, XLK, and other technology ETFs will lose Facebook and Alphabet. The Consumer Discretionary ETFs like the Consumer Discretionary Select Spyder, XLY will lose Netflix and Disney and other stocks.
Standard and Poor's periodically makes changes to the sector classifications in order to keep up with changes in technology and consumer habits.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
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