Leading astronomers made a surprise ruling 12 years ago: Pluto, the smallest planet circling the sun, is not a planet at all. The cosmic reclassification, giving Earth seven planetary neighbors instead of eight, had ripple effects. Stargazers quibbled over Plutoâs demotion. Grade-schoolers dropped the âPâ in jingles for memorizing the solar system. But for most people, Plutoâs revised status didnât change the way they see the heavens. Celestial definitions came to mind ahead of a rare move by major index providers to change how more than 2,100 companies across the globe are classified. As with Pluto, fund investors will need to relearn some long-held assumptions as a result of the changes. Most index funds that track broad benchmarks such as the S&P 500 or the MSCI World wonât be affected, but many others geared toward specific business sectors and industries will be. For some, the shifts could prove an opportunity to rethink what they own. What makes a âtechâ company?Why change things? MSCI and S&P are updating their Global Industry Classification Standards (GICS), a framework developed in 1999, to reflect major changes to the global economy and capital markets, particularly in technology. Take Google, a company long synonymous with âtechâ and internet software. Google parent Alphabet derives the bulk of its revenue from advertising, but also makes money from apps and hardware, and operates side ventures including Waymo, a unit that makes self-driving cars. Decisions about what makes a âtechâ giant are not as simple as they once were.
Explore iShares evolved sector ETFs.
The sector classification overhaul, set in motion last year, will begin in September and affect three of the 11 sector classifications that divide the global stock market. A newly created Communications Services sector will replace a grouping that is currently called Telecommunications Services. The new group will be populated by legacy Telecom stocks, as well as certain stocks from the Information Technology and Consumer Discretionary categories. Some high-profile stocks will be assigned to new sectors after the reclassification. Facebook and Alphabet will move from Information Technology to Communications Services in GICS-tracking indexes. Meanwhile, Netflix will move from Consumer Discretionary to Communications Services. None of what the media has dubbed the FANG stocks (Facebook, Amazon.com, Netflix and Google parent Alphabet) will be classified as Information Technology after the GICS changes, perhaps a surprise to those who think of internet innovation as âtech.â The same applies to Chinaâs BAT stocks (Baidu, Alibaba Group and Tencent). All of these were Information Technology stocks before the changes; none will be after. Implications for investorsIndex changes present sector investors with new risks and considerations. In particular, revamped GICS-tracking sectors will be increasingly top-heavy with a few, big companies. That means sector performance will benefit more when shares of those companies outperform and suffer when they do poorly.
Read more about iSharesâ view on the GICS reclassification.
Apple and Microsoftâs representation in the S&P 500âs Information Technology sector is expected to rise to about 37% from roughly 28%, according to market capitalization estimates from BlackRock using Thomson Reuters data from Aug. 31, 2018. In the S&P 500âs Consumer Discretionary sector, Amazonâs index weighting will rise to roughly 35% from 28%. The new Communications Services sector in the S&P 500 will be highly concentrated as well, with Alphabet and Facebook expected to account for more than 50% of the index. Actual sector index fund weightings are likely to differ from BlackRock estimates in order to comply with diversification standards. Not all index funds are changing, however, and investors have options if they wish to access the current âtechâ holdings in a single fund. The majority of iShares sector-focused ETFs do not follow GICS indexes, and so are not directly affected by the changes. For instance, the iShares U.S. Technology ETF (IYW), which seeks to track a non-GICS Dow Jones index, will continue to include Apple, Microsoft, Facebook and Alphabet. The iShares North American Tech ETF (IGM) will maintain its exposure to securities in the S&P North American Technology Sector Index, including Amazon.com, Apple, Microsoft, Facebook and Alphabet. Itâs a big universe out there. Investors have plenty of choices, as long as they know where to look. Chris Dieterich is a strategist in BlackRockâs ETF and Index Investments Group and a regular contributor to The Blog. Carefully consider the Funds' investment objectives, risk factors, and charges and expenses before investing. This and other information can be found in the Funds' prospectuses or, if available, the summary prospectuses which may be obtained by visitingwww.iShares.com or www.blackrock.com. Read the prospectus carefully before investing. Investing involves risk, including possible loss of principal. Information on non-iShares Fund securities is provided strictly for illustrative purposes and should not be deemed an offer to sell or a solicitation of an offer to buy shares of any security other than the iShares Funds, that are described in this material. For a complete list of holdings of iShares ETFs, please visit www.iShares.com Funds that concentrate investments in specific industries, sectors, markets or asset classes may underperform or be more volatile than other industries, sectors, markets or asset classes and than the general securities market. Technology companies may be subject to severe competition and product obsolescence. The information included in this material has been taken from trade and other sources considered to be reliable. We do not represent that this information is accurate and complete, and it should not be relied upon as such. Any opinions expressed in this material reflect our analysis at this date and are subject to change. The information and opinions contained in this material are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, but are not guaranteed as to accuracy. The iShares Funds are distributed by BlackRock Investments, LLC (together with its affiliates, âBlackRockâ). The iShares Funds are not sponsored, endorsed, issued, sold or promoted by MSCI Inc. or S&P Dow Jones Indices LLC. None of these companies make any representation regarding the advisability of investing in the Funds. BlackRock Investments, LLC is not affiliated with the companies listed above. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of September 2018 and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and nonproprietary sources deemed by BlackRock to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees or agents. This post may contain âforward-lookingâ information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any forecasts made will come to pass. Reliance upon information in this post is at the sole discretion of the reader. ©2018 BlackRock, Inc. All rights reserved. BLACKROCK is a registered trademark of BlackRock, Inc., or its subsidiaries in the United States and elsewhere. All other marks are the property of their respective owners. ICR0918U-606089-1895845Via https://www.blackrockblog.com/2018/09/21/stock-sector-reclassifications/
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AuthorHi I am Evelina Bryant , I am 32 years old from Big Bear Lake, CA. I am woring as a financial analyst with local financial services company. ArchivesNo Archives Categories |