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Upcoming index shakeup has broad implications - Barron's

Sep. 02, 2018 1:35 AM ETAlphabet Inc. (GOOG) StockQQQ, DIS, XLK, XLY, GOOG, AMZN, CMCSA, TWTR, META, GOOGLBy: Eli Hoffmann, SA News Editor65 Comments
  • Both S&P and MSCI are overhauling their Global Industry Classification System ("GICS"), which is likely to have significant implications as ETFs, mutual funds, and various and sundry sector balancers rejigger their portfolios, Barron's says in this weekend's cover story. Shuffles include:
  • The shuttering of Telecom and the creation of Communication, which will become host to Alphabet (GOOG, GOOGL), Facebook (NASDAQ:FB), Twitter (NYSE:TWTR), and game stocks like [ATVI]. This will lop 23% off Tech's market cap, and leave it much more concentrated on chips, hardware and software.
  • Consumer discretionary will become even more exposed to Amazon (NASDAQ:AMZN), with stocks like Disney (NYSE:DIS) and Comcast (NASDAQ:CMCSA) also moving to Communication.
  • Further complicating matters, S&P will shuffle the deck post-market on Sept. 21; MSCI is aiming for early December.
  • Many popular ETFs will be impacted, for example XLY and XLK. No change to QQQ though, which tracks the largest 100 non-financial stocks on the Nasdaq regardless of sector classification.
  • A second article notes that:
  • A Deutsche Bank study finds that stocks that get disproportionately sold when an index rebalances outperform those that get bought over the following 12 months.
  • Tech stocks, already leading the bull market, should benefit the most from the changes; spreading them across three sectors instead of two will allow fund managers to buy more of them without running up against sector-weight limits or appearing over-exposed. "That could add more fuel to the tech rally. But it could also lead to more pain once the music finally stops."

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