The newly created communications services sector is stacked with many of the largest Internet names, and investors could capture the growth potential with a sector-specific exchange traded fund.
The new S&P 500 communication services sector, which includes names like Facebook (NasdaqGS: FB), Alphabet (NasdaqGS: GOOG) and Netflix (NasdaqGS: NFLX), has begun trading as part of the largest reshuffle ever for the stock market’s sector classification.
Goldman Sachs contended that the newly minted S&P communication services sector could outperform, CNBC reports.
“The historical risk-adjusted return profile of Comm Services will be among the best in the S&P 500 … The new Comm Services sector will also offer growth at a reasonable valuation,” Goldman’s chief U.S. equity strategist, David Kostin, said in a note. “We recommended investors overweight Info Tech and Comm Services and underweight Consumer Discretionary.”
Kostin argued that the new communication services sector exhibited almost two times the risk-adjusted return of the previous telecommunication sector in the current bull market run. Additionally, the strategist pointed out the reclassified sector’s components have generated a annual 17% return since 2009, compared to the the old telecom’s 9% annual return over the same period.
Second-highest sales growth in S&P 500?
Looking ahead, Kostin estimated the new sector to show the second-highest sales growth in the S&P 500 at 9% for 2019, compared to 6% for the broader market.