Effective at the end of trading on September 28th, Standard & Poor’s and MSCI, the companies who manage the Global Industry Classification Standards (GICS), made some major adjustments to how companies are classified into the 11 market sectors. The changes move several companies from one sector to another and will have a large impact on many mutual funds and ETFs.
More than 10% of the S&P 500 Index market value will be re-classified, with most of the changes centered on switching stocks from Information Technology and Consumer Discretionary to Communication Services, formerly know as Telecommunication Services. For investors that currently use mutual funds or ETFs to allocate their portfolios across the different market sectors, some action will now be required to ensure their sector allocations are in fact as intended.
Not all sector funds are created equal; some fund providers utilize the GICS classifications, while others use various other classification strategies. As such, investors will find that comparing funds labeled as Consumer Discretionary or Consumer Cyclical have quite different underlying holdings, which will become even more drastic with these new changes.
CGN Advisors utilizes sector allocation as a tool for risk management and tilting portfolios towards more attractive opportunities given the business cycle of the overall economy. As such, we’ve been focusing on this recent change for the past several months and we anticipate limited impact in the near term on client portfolios.
State Street Global Advisors, the firm that provides the SPDRs series of ETFs, recently published a summary of the changes, which we have linked here for your review. Please do not hesitate to contact us here at CGN of you have questions about how these changes may impact your portfolio or strategy.
- The Talented Mike Greim, playing at Finn's Neighborhood Pub Oct 18th