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How Growth And Value ETFs Look After The Debut Of Communication Services

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How Growth And Value ETFs Look After The Debut Of Communication Services
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In late September, the communication services sector officially became the 11th sector in the S&P 500. The move saw an increased weight in the S&P 500 for the group previously known as telecom, as well as some departures from the consumer discretionary and technology sectors to communication services.

Those moves affect more than just sector exchange traded funds. Some growth and value ETFs are affected by moves used to create the communication services sector.

What Happened

Alphabet Inc. (NASDAQ: GOOG), Facebook Inc. (NASDAQ: FB) and Netflix, Inc. (NASDAQ: NFLX) are among the stocks that left technology and consumer discretionary for communication services, explaining much of the new found communication services heft in some growth ETFs, including the Schwab U.S. Large-Cap Growth ETF (NYSE: SCHG).

SCHG “has 24% of assets in Information Technology, 16% in Consumer Discretionary and 12% in Communications Services; an additional 16% in health care is not impacted by the GICS realignment,” said CFRA Research Director of ETF & Mutual Fund Research Todd Rosenbluth in a recent note.

SCHG holds 417 stocks and features Alphabet and Google among its top 10 holdings. The rival SPDR Portfolio S&P 500 Growth ETF (NYSE: SPYG) allocates 12.16 percent of its weight to communication services, that ETF's fourth-largest sector weight.

Why It's Important

Some value ETFs also have new weights to communication services, but to different names from that sector than the likes of Alphabet and Netflix. The iShares S&P 500 Value ETF (NYSE: IVE) has a new communication services weight.

IVE “held more in Communications Services (7%) of assets than in Consumer Discretionary (6%),” said Rosenbluth. He notes IVE's communication services exposure is primarily comprised of AT&T Inc. (NYSE: T), Verizon Communications Inc. (NYSE: VZ), Walt Disney Co. (NYSE: DIS) and Comcast Corp. (NASDAQ: CMCSA).

What's Next

The Vanguard Value ETF (NYSE: VTV), a direct competitor to IVE, has a lower communication services weight than its iShares rival but a larger technology allocation.

“While the sector weightings of these style-oriented ETFs will shift as the growth/momentum or value criteria is revisited per index rules, there are no sector constraints in building these portfolios. As such, we think investors need to look inside and understand how much exposure they have to the three impacted sectors,” said Rosenbluth.

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