Tech, Telecom & Utilities
Shifting to the impact on technology ETFs, the largest and fifth-largest industry groups for the Technology Select Sector SPDR (XLK) are software (19% of May assets) and internet software and services (14%). XLK’s holdings in these industries include Electronic Arts, Facebook and Google, all of which CFRA thinks could be impacted by the proposed GICS changes.
However, XLK holding Microsoft is not expected to shift sectors. XLK also holds S&P 500 telecom services companies, with AT&T and Verizon comprising 8% of combined assets.
Where In The ETF World Is AT&T Found?
|Sector SPDR – SSGA||Technology Select Sector SPDR (XLK)|
|iShares||iShares Global Telecom (IXP)|
|Guggenheim||Guggenheim S&P 500 Equal Weight Utilities (RYU)|
Source: CFRA’s MarketScope Advisor
The Guggenheim S&P 500 Equal Weight Information Technology (RYT) has more software exposure (20%) of assets and less internet software and services (8%). In addition, RYT has no telecom exposure; AT&T and Verizon can be found in the Guggenheim S&P 500 Equal Weight Utilities ETF (RYU).
Telecom stocks, such as CBB and Consolidated Communications, can also be found in the PowerShares S&P SmallCap Utilities Portfolio (PSCU), along with South Jersey Industries.
While some U.S.-focused sector ETFs have combined telecom with another sector, the iShares Global Telecom ETF (IXP) tracks a global S&P index of only telecom companies. AT&T and Verizon are in the top 10 holdings, along with Canadian telco BCE and European carriers Deutsche Telekom and Vodafone Group. In addition, Fidelity and Vanguard each offer MSCI-based U.S.-focused telecom ETFs.
CFRA thinks the potential creation of a communication services GICS sector, bringing together companies currently in three different sectors, would have a large impact on the sector ETF universe. The above and other passively managed funds simply aim to replicate an S&P or MSCI based index.
These index trackers do not have discretion the way actively managed funds do, such the MFS Technology Fund (MTCAX), which has an 11% weighting in consumer discretionary stocks. We will keep an eye on these developments and provide updates on what they mean for investors.
At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA.