Sector Shifts Could Affect These ETFs | ETF Trends

Shifts pertaining to the Global Industry Classification Standard (GICS®) system will be implemented on March 17, and for those out there that aren’t yet indexing nerds, those changes mean a slew of companies will see their industry and sector classifications altered.

As such, there are implications for a slew of exchange traded funds, including the Invesco QQQ Trust (QQQ) and the Invesco NASDAQ 100 ETF (QQQM). Regarding the S&P 500, that benchmark’s allocations to the technology and consumer discretionary sectors are poised to decline following the GICS® changes. QQQ and QQQM follow the Nasdaq 100 Index (NDX) and currently allocate a combined 65.12% of their weights to those sectors.

“A key update in March 2023 is that retailers will be classified based on the nature of goods sold rather than according to the underlying technology used to deliver the product or service. This update reflects the fact that retailers have increasingly taken an omni-channel approach to sell their products, reducing the demarcation between existing segments,” according to S&P Dow Jones Indices.

That could affect a small number of QQQ and QQQM consumer cyclical components, but not Amazon (NASDAQ:AMZN) and Tesla (NASDAQ:TSLA), which combine for almost 10% of the ETFs’ rosters. Additionally, some of the GICS® impact is expected for the consumer staples sector, which represents 6.05% of the Invesco ETFs’ portfolios.

As noted above, there will be alterations to the composition of the technology sector, and that’s meaningful to QQQ and QQQM investors because that group commands nearly half of the ETFs’ portfolios.

“Information Technology will also be affected by the upcoming changes: the Data Processing & Outsourced Services sub-industry is being discontinued to reflect the close alignment with business support activities in other sectors. Companies in the sub-industry will migrate to: Industrials under a definition update or under Human Resources & Employment Services; to Financials under Transaction and Payment Processing; or to Consumer Discretionary under Hotels, Resorts & Cruise Lines,” added S&P Dow Jones.

It’s possible that PayPal (NASDAQ:PYPL) and several other NDX member firms currently classified as tech could move to financial services, which is important because the index is a measure of the 100 largest Nasdaq-listed firms that aren’t financial services companies.

Likewise, how GICS® changes may or may not impact the materials and real estate sectors is of little concern to QQQ and QQQM investors because those two sectors, like financial services, aren’t represented in the ETFs. Additionally, utilities and energy stocks combine for just 2% of the funds.

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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.