A new sector in the form of Telecommunication Services is expected to come up as part of the annual updates of Global Industry Classification Standard (GICS) on September 28th. Following which there is expected to be some major changes in US markets. Especially, the tech companies are about to undergo a major reshuffling in the stock market.
The telecommunications services sector is going to be a combination of tech, media, and telecom companies and as a result of which some of the most popular stocks will be involved in it and will undergo a significant amount of changes. As part of the process, the old telecom sector will be ditched and will be replaced with the new sector. As per Wells Fargo, the communication services sector will be the largest sector of S&P 500 with a weight of about 10%.
The telecommunication services sector will involve some big names, the classification of around 26 consumer discretionary or information technology stocks will change. It will also include some big names in the telecom space like Verizon Communications and AT&T, tech companies like Facebook and Google’s parent Alphabet and media and entertainment companies like Netflix and Comcast. It is only the second sector addition in the history since 1999 and will have the biggest impact on the sector structure in GICS history.
Reclassification for ETF's:
The exchange-traded funds that track S&P 500 sectors will be much affected and will have to overhaul some major changes to adjust as per the new classification such that it gives a true reflection of the index. Some of the big fund houses have already started making changes much ahead of its implementation.
How will it impact individual investors and institutional investors?
Big institutional investors dealing with S&P 500 sectors also have to undergo a reshuffle in its holdings and weight so as to reflect the true changes of the index. The individual investors also have to reshuffle the composition and weight of stocks in one’s portfolio as per the risk-return appetite of the investors. Conducting due diligence will be important for the investors will be beneficial as it will ensure the approach and investing methodology is well prepared for the coming change.
More leg space for growth-oriented stocks:
The making of the communication services sector will ensure to add more growth-oriented stocks in its kitty for the investors focusing on sector-specific stocks. With the inclusion of Consumer Discretionary and Information Technology stocks under its umbrella it will provide the much-needed growth in this space. As per current market, condition positioning oneself in the growth-oriented sectors of the economy will help to bolster one’s portfolio in the never-ending bull market.
No Pain No Gain:
The telecommunication services sector was brought up to address some of the major pain points for the investors and more so for the sector-specific investors. The current telecom sectors had been under the lens for quite some time now concerning using it as a bond proxy, too much of dividend-paying stocks to name a few. Rest assured but the new communication services sector will be more sensitive and focused on the broader equity markets rather than the US 10 year Treasury Yield like the current telecom sector. It will also tend to be more cyclical than the current telecom sector that is in place.