The communication services sector is here and with it come some significant changes for various exchange traded funds.
Last year, index providers S&P Dow Jones and MSCI announced the formation of the communication services sector, a new look on the telecommunications sector that includes traditional telecom companies as well as companies previously classified as consumer discretionary and technology names.
“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,” said BlackRock in a recent note. “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 ‘tech.’”
ETF Impact
Different ETF issuers are handling the debut of communication services in various ways. For example, the iShares U.S. Technology ETF Technology Equities (NYSEArca: IYW), an ETF often known for its large weight to Apple Inc. (NASDAQ: AAPL), will not see significant changes as a result of the debut of the communication services group.
“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,” according to BlackRock.
IYW has $4.42 billion in assets under management. The $1.67 billion iShares North American Tech ETF (IGM) will continue providing exposure to the likes of Alphabet and Facebook.
“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,” said BlackRock.
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