S&P May Disconnect Telecom Sector Index

May 23, 2017

No Clear-Cut Path Forward

But the path to reorganizing the index is not so clear cut for S&P Global and MSCI, which together manage the Global Industry Classification Standard industry taxonomy for indexes. MSCI declined to comment.

Options could include an expansion of the current index. with competitors such as cable operators, or an absorption of telecom companies into another S&P sector, such as consumer discretionary, technology or utilities.

The telecommunications sector's biggest competitors in the S&P 500 are cable operators Comcast and Charter Communications, while media rivals include online services such as Netflix. These companies are in the consumer discretionary index.

But cable companies are regulated differently, and have different service offerings than telecom companies, so they may not be an exact match for a new index.

Consumer Discretionary Could Change

Including AT&T and Verizon in the consumer discretionary index would be a massive change for that sector, as AT&T would be the second-biggest company by market value behind only Amazon, while Verizon would be the fourth-biggest company, just behind Home Depot.

Since slow-growing telecom operators are notable for their high-dividend yields, some investors. including David Haviland, managing partner at Beaumont Capital Management in Needham, Massachusetts, say they should be added to the utilities index.

So far, investors have not been banging on S&P's door looking for an elimination of the sector, according to S&P's Blitzer. But many do question its relevance.

"Four companies does not a sector make," said Haviland, who uses the Technology Select Sector SPDR Fund (XLK) for telecom exposure. "The viability of a three-company sector is highly questionable."

 

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