Starting Monday, investors who have played the momentum in FANG stocks may find some of which juice in a fresh communications services sector formed by S&P Dow Jones Indices.
Three of the four FANG stocks will become part of the fresh sector, which will replace telecom, among the 11 major S&P industry groups. MSCI has partnered with S&P Dow Jones as well as also also will be revamping global indexes to reflect the fresh sector.
Industry groups are like a road map to the S&P 500 as well as also also stock market, as well as also also are at the core of many exchange traded funds. They are also used by major investors as they rate sectors as well as also also designate holdings. The improvements being made with the communications services sector will affect $2.8 trillion in market cap, according to CFRA.
The fresh communications services industry will retain traditional telecom stocks like AT&T as well as also also Verizon, nevertheless right now include media companies like CBS. Walt Disney as well as also also News Corp as well as also also social media names like Twitter as well as also also Facebook.
With the exception of Amazon, the different FANG stocks Facebook, Netflix as well as also also Alphabet, parent of Google, are joining the fresh sector. Facebook as well as also also Google are leaving tech as well as also also Netflix will be leaving consumer discretionary. Amazon will remain in consumer discretionary, as well as also also eBay jumps through tech to join which from the largely retail oriented sector.
While which may sound like inside baseball, the improvements from the S&P sectors should, over time, result in massive shifts in stock ownership as money managers realign their portfolios, ETFs restructure holdings as well as also also Wall Street strategists give fresh weighting to both old as well as also also newly aligned industry groups. Some of the improvements have already occurred, as there will be already a fresh ETF , the Communications Services Select Sector SPDR Fund XLC, to reflect the sector.
Bottom line for investors will be which may give a boost to the technology sector as big money managers end up underweight tech as Facebook as well as also also Google leave the sector. There could also be fresh buying in some of the media as well as also also different stocks as managers add holdings from the communications services sector, as well as also also even as as Netflix as well as also also Google bring some of their momentum to the group.
“What you look at will be managers have to look at where they’re positioned versus their benchmark, as well as also also they can only be overweight or underweight by a certain amount,” said Steven DeSanctis, equity strategist at Jefferies. “Large growth guys are going to underweight traditional tech. little cap growth guys have a big overweight in software.”
The fact which widely held as well as also also followed FANG will be a part of which makes some of the improvements more profound. The improvements take place at Friday’s close nevertheless the current sectors will stay in place until the end of the quarter, a week later. Analysts expect the cost to earnings ratio in tech to drop, as some of the high flying names like Alphabet leave. CFRA says the market cap of the tech sector will shrink by about 19 percent.
The communications services sector will also not be the dividend play Telecom was because of the fact which will be made up of more than just telecom companies, traditionally high yielders.
“Ultimately, the fresh communication service sector will better reflect the rapidly changing way the planet’s population communicates. which will result in a more cyclical, lower yielding sector. The forward multiple on the fresh sector could be as high as 28.0x, up sharply through the lower growth, value-oriented telecommunication sector which currently trades at 10.6x,” notes Lindsey Belll, CFRA investment strategist.
Bell said the fresh sector should have fairly low volatility, as well as also also the sector’s dividend yield will be 1.7 percent, compared to 5.4 percent for the telecom group.
DeSanctis said he’s wondering if the improvements are reflecting which FANG became such a big part of the market which a fresh sector was necessary.
“which makes you scratch your head as well as also also say, will be which a peak? At least a peak from the short run?,” he said.
The fresh sector will represent about 9.8 percent of the S&P 500 index , with tech as the largest component of the fresh sector at 52 percent, according to CFRA. Consumer companies like Netflix are about 29 percent of the sector, while the telecom companies are about 18 percent.