Big Alterations Coming to Consumer Discretionary, Staples ETFs

The changes are a long way off, but MSCI and S&P Global recently announced notable alterations to the global industry classification standard (GICS) system. Those changes are likely to result in new looks for various consumer discretionary and staples exchange traded funds.

These include the elimination of the internet and direct marketing retail sub-sector and the merger of general merchandise and department stores into a new group known as broadline retail.

“The demarcation between General Merchandise Stores and Department Stores has diminished as well since both formats are comprised of retail spaces primarily selling consumer discretionary goods,” according to a statement issued by the index providers. “Retailers that are generating a majority of revenue or earnings from consumable staple items such as food, household, and personal care products warrant a consolidation under the Consumer Staples Sector.”

Perhaps the most notable decision among individual stocks is moving Target (NYSE:TGT) to consumer staples from consumer discretionary. Dollar stores Dollar General (NYSE:DG) and Dollar Tree (NASDAQ:DLTR) are also making that move.

“A select list of large market capitalization companies affected by the changes will be announced no later than June 30, 2022. The full list of companies affected by these changes will be made available to clients no later than December 15, 2022,” adds MSCI and S&P.

Target and the pair of dollar store operators currently combine for more than 6% of cap-weighted consumer discretionary indexes, indicating that the move to consumer staples is significant. Those stocks likely join a new sub-sector known as consumer staples merchandise retail.

“Retailers offering a wide range of consumer staples merchandise such as food, household, and personal care products,” according to the index providers. “This Sub-Industry includes hypermarkets, supercenters and other consumer staples retailers such as discount retail spaces and online marketplaces selling mostly consumer staples goods.”

The changes are scheduled to go into effect on March 17, 2023.

Among the ETFs that could be affected by the moves are the Invesco S&P 500 Equal Weight Consumer Discretionary ETF (RCD), Invesco S&P SmallCap Consumer Discretionary ETF (PSCD), Invesco S&P 500 Equal Weight Consumer Staples ETF (RHS) and the Invesco S&P SmallCap Consumer Staples ETF (PSCC). Each of those ETFs track S&P indexes. Invesco also issues several other discretionary and staples ETFs that don’t follow MSCI or S&P indexes, such as the Invesco DWA Consumer Staples Momentum ETF (PSL), that could be affected by the moves.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.