On Nov. 15, S&P Dow Jones Indices and MSCI announced a dramatic change to its Global Industry Classification Standard (GICS), which underpins the indexes backing hundreds of ETFs.
The changes, which go into effect next year, will reorganize several high-profile technology stocks and realign sector definitions such that the so-called FANG (Facebook, Amazon, Netflix, Google) stocks would likely move into a single sector.
The revisions, announced as part of their annual review of the GICS, will involve renaming the “telecommunication services sector” to the “communications services sector” and broadening its scope considerably.
The renamed sector will still include telecom companies, but now it will also include internet media companies, mobile gaming app makers, online streaming services, search engines, social media platforms and more.
The ETF Impact
As much as $62 billion in ETF assets could be impacted by the change.
No specific stock reclassifications have been announced yet, but the changes could affect the lineup of at least 30 sector funds, including those from Vanguard, iShares, State Street, Fidelity, Guggenheim and PowerShares. A list of ETFs that could be impacted is below:
New Constituents For VOX, FCOM, XTL
The GICS methodology is reviewed annually to ensure the sector framework continues to reflect the reality of the equity markets. The last time the GICS was reviewed, S&P and MSCI broke out a new real estate sector from the existing financials sector. With it came at least one new ETF, the Real Estate Select Sector SPDR Fund (XLRE) (see: "Growing Pains For New Real Estate Sector").
This year's revision, however, has the potential to be much more impactful.
For starters, the new sector will split into two industry groups: telecommunication services, and media and entertainment.
The telecommunications services group will continue to provide exposure to providers of telecom and related services, but now it will also include internet service providers. That means telecom ETFs like the $1.2 billion Vanguard Telecommunications Services ETF (VOX), the $370 million iShares Global Telecom ETF (IXP), the $112 million Fidelity MSCI Telecommunication Services Index ETF (FCOM) and the $46 million SPDR S&P Telecom ETF (XTL) will likely welcome new constituents to their portfolios, such as AT&T, CBS, Comcast or Verizon Communications.
