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.
Investors who are interested in gaining exposure to the new communication services sector can look to the Communication Services Select Sector SPDR Fund (NYSEArca: XLC).
The Communication Services Select Sector SPDR Fund tries to reflect the performance of the, Communication Services Select Sector Index, which includes companies that have been identified as Communication Services companies by the Global Industry Classification Standard. Specifically, XLC will include securities of companies from diversified telecommunication services; wireless telecommunication services; media; entertainment; and interactive media & services.
Top holdings include many names that people are familiar with, including Facebook 17.7%, Alphabet Class C 11.7%, Alphabet Class A 11.5%, Walt Disney (NYSE: DIS) 4.7% and Charter Communications (NasdaqGS: CHTR) 4.5%.
For more information on market sectors, visit our sector ETFs category.