Ahead of the September debut of the new communications services sector, State Street Global Advisors, the largest issuer of sector exchange traded funds, launched a sector SPDR to track the new sector.
The Communication Services Select Sector SPDR XLC debuted Tuesday. Communication services brings a refreshed view to the sector previously known as telecommunications. The S&P 500 will continue to have 11 sectors.
What Happened
Last year, Standard & Poor's and MSCI, two of the largest providers of indexes for use by ETF issuers, announced plans for the communication services sector. Communication services will include traditional telecommunications companies as well as some well-known names from the consumer discretionary and technology sectors.
Media and some internet companies previously residing in the consumer discretionary sector will move to communication services. Likewise, some well-known companies currently in the technology sector that are viewed as communications plays will move from tech to communication services.
XLC tracks the Communication Services Select Sector Index and “seeks to provide precise exposure to companies from the media, retailing, and software & services industries in the U.S.,” according to SSGA.
Why It's Important
The new ETF debuts with 26 stocks and a weighted average market value of $368.89 billion. Facebook Inc. FB and the two share classes of Google parent Alphabet Inc. GOOGL GOOG combine for about 44 percent of XLC's weight. Other top 10 holdings in the new SPDR ETF include Netflix, Inc. NFLX, Walt Disney Co. DIS and Verizon Communications Inc. VZ.
“At the close of business on Sept. 21, classifications for 26 consumer discretionary or information technology stocks will be changed in the Global Industry Classification Standard,” SSGA said in a Tuesday note. “The old Telecommunication Services (Telecom) sector will disappear, and it will re-emerge as the new, expanded Communication Services sector.”
What's Next
Other ETF issuers are taking different approaches to prepare for the debut of the communication services sector. For example, Vanguard Communication Services ETF VOX was previously a dedicated telecom ETF, but rather than create a new ETF, Vanguard moved VOX's index to the MSCI US Investable Market Communication Services 25/50 Transition Index.
VOX is still heavily allocated to traditional telecom firms, but is adding positions in the likes of Alphabet and Facebook, among others.
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