'Time To Acknowledge' Tech's Evolution
The motivation behind the GICS revisions, said S&P and MSCI in a joint statement, was the rapid evolution and blending of internet, media and telecom companies.
"The internet began as a technological approach to sharing information; it has become the way many businesses operate," said David Blitzer, chairman of the Index Committee at S&P Dow Jones Indices, said in the press release.
"Cable companies are combining with telecom companies, creating their own media content and delivering it to consumers. The lines among media, communications and content are blurred. It is time to acknowledge this convergence and the overlapping services these companies provide," he added.
One big question that remains is if and how technology conglomerates such as Amazon or Apple will be reclassified. Consider Amazon. Its Amazon Web Services division contributed the majority of the company's Q3 2017 growth; should Amazon then be lumped into the new internet services and infrastructure sub-industry group? Or does its Amazon Video Prime streaming service, the second-most-popular such service in the market, mean the company should go in the entertainment industry group instead? Or, as the world's largest e-tailer, does it stay where it is in internet and direct marketing retail?
Don't Be Fooled By Track Record
Though the changes will be sweeping, they're unlikely to change a 30,000 foot view of the technology sector, says Todd Rosenbluth, senior director of ETF and mutual fund research for CFRA: "Technology index ETFs and mutual funds should continue to own Apple and Microsoft and other large-cap stocks."
Still, investors looking to access certain tech stocks and/or subsectors through ETFs will need to revisit their allocations in the coming months.
"The pending changes highlight the importance of investors understanding what's inside ETFs and mutual funds," added Rosenbluth.
Even though the indexes underpinning their sector funds are changing, "these products will continue to showcase an unchanged track record. For those shareholders and potential ones that focus solely on a past performance, they’ll miss the big picture and fail to understand what will drive these products going forward,” he noted.
Therefore, instead of looking to the past for answers, "understanding what's inside a fund can help [investors] to understand its future prospects," Rosenbluth said.
Contact Lara Crigger at [email protected]