Courtesy Everett Collection
State Street Global Advisors on Tuesday launched the latest in its popular series of U.S. sector-based exchange-traded funds, in anticipation of a major reclassification that will be finalized later this year.
The new fund, the Communication Services Select Sector SPDR Fund was created in response to upcoming changes to MSCI’s and S&P Dow Jones’s Global Industry Classification Standard. The changes bring about the creation of a new communications services sector, which the new fund will track.
The sector is comprised of a collection of stocks that are currently classified in the telecommunications sector, the information technology sector, and the consumer-discretionary group, including such market bellwethers as Walt Disney Co. , Netflix Inc. Facebook Inc. , Google-parent Alphabet Inc. , and both AT&T Inc. and Verizon Communications Inc.
The new sector is an attempt to better reflect the primary business of different companies, which often span multiple sector categories and don’t always reflect the industry they’re currently classified in. Telecommunication stocks like AT&T and Verizon, for example, have been placed in the technology sector, while Netflix, despite being one of the most notable internet companies of the era, is classified as a discretionary name, not a technology one.
Earlier this year, Morgan Stanley said that the upcoming realignment was “unprecedented,” noting that there had only been one similar kind of sector change in the history of the industry indexes — when the real-estate sector was spun out of the financial group.
According to the investment bank, whose data is from March, the new sector will be the third-largest on the market based on market cap, comprising 13.2% of the total. It will only have 60 components, making it the eighth-largest by this metric; Morgan Stanley described it as “mega cap heavy and concentrated” in terms of its holdings.
The Communication Services ETF rose 0.4% in its trading debut on Tuesday, bucking the solidly negative tone of the broader market. The Dow Jones Industrial Average fell 1.1%, while the S&P 500 was off 0.4% and the Nasdaq Composite Index fell 0.5%. Broader indexes were pressured by the latest sign of trade tensions between the U.S. and China.
Only about 11,000 shares traded hands in afternoon trading, a relatively low amount for a high-profile launch. The 30-day average volume for the Technology Select Sector SPDR ETF , for example, is nearly 12.5 million shares. The tech ETF still holds Facebook, Alphabet, and AT&T as major components; the realignment will be completed later this year.
The popularity of some of the new sector’s components — including three of the five “FAANG” stocks that have fueled market gains over the past year and a half — could have made the fund a major trading favorite had it been around for as long as the other sector-based SPDR ETFs, one of the most popular ways for investors to get exposure to specific slices of the equity market. Excluding the new ETF, the U.S. SPDR sector funds have more than $130 billion in assets.
Per Morgan Stanley, had the new sector been created in 2013, all three primary sectors that it is comprised of—tech, consumer discretionary, and telecom/communications—would have seen stronger performance under the new categorization structure.