September 12, 2018 / 4:27 PM / 8 months ago

GRAPHIC-Tech, media shares find new home in sector overhaul

    By Noel Randewich
    SAN FRANCISCO, Sept 12 (Reuters) - Alphabet Inc,
Facebook Inc, Netflix Inc and others will be in
focus on Sept. 24 when they are moved out of the tech and
consumer discretionary sectors into a deepened pool of
communication and media stocks. 
    In the largest-ever shakeup of the Global Industry
Classification Standard (GICS), the telecommunication services
sector will be renamed "communication services" and include 18
companies pulled from consumer discretionary and technology,
including Netflix, Walt Disney Co and Twitter Inc
    S&P Dow Jones Indices and MSCI have maintained the widely
used business classification system since 1999, and the
rearrangement is meant to reflect how the tech, media and
consumer industries have evolved. 
    Stocks being shifted account for about 8 percent of the S&P
500, and S&P subindexes will reflect the changes once trading
starts on Sept. 24.
    The communication services sector will include three out of
the four so-called FANG stocks - Facebook, Inc
, Netflix and Google-owner Alphabet - even though
investors widely consider them the leaders of the tech rally
that powered the stock market higher in recent years.

    Alphabet and Facebook will leave technology and Netflix will
by moved out of consumer discretionary to join to the renamed
sector. Amazon will stay put in consumer discretionary.
    The technology sector's weight in the S&P 500 will shrink to
20 percent from 26 percent. 
    Its largest remaining constituents will be Apple Inc
, Microsoft Corp, Visa Inc and Intel Corp
. After the shuffle removes the influence of some of the
biggest companies from the sector's performance, chipmakers,
cloud-computing sellers and other tech constituents may have
more of a chance to shine.
    Exchange-traded funds (ETFs) that passively track sector
indexes have about $89 billion invested in technology, more than
any other sector, according to data from Thomson Reuters Lipper.
    Trading could be volatile on Friday for stocks caught in the
shakeup as some of those tech ETFs, along with index funds
focused on consumer discretionary and telecoms, adjust their
    But some of the heavy lifting is already complete. 
    Leading fund provider Vanguard Group started transitioning
its sector ETFs in the June quarter, while State Street Global
Advisors has already launched a new fund tracking communication
    The Communication Services Select Sector SPRD Fund
has fallen 3 percent since its June debut, partly because
Facebook, its second-largest holding, tumbled 16 percent on
growing regulatory concerns.
    Communication services will account for 11 percent of the
S&P 500, up from less than 2 percent in its current
configuration as the telecom sector.
    Consumer discretionary will make up 11 percent of the S&P
500, down from 13 percent. Amazon's weight within consumer
discretionary will rise to 34 percent from 27 percent, with Home
Depot Inc and McDonald's Corp the next largest
    S&P 500 communication services companies will have an
aggregate valuation of 18 times expected earnings after the
shakeup, compared to 10 times for the current S&P 500 telecom
constituents: AT&T Inc, CenturyLink Inc and
Verizon Communications Inc. 
 (Reporting by Noel Randewich; Editing by Alden Bentley and
Meredith mazzilli)
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