Market Overview

The Surprising ETFs That Will Hold Lyft And Uber

The Surprising ETFs That Will Hold Lyft And Uber

On the surface, it looks like Lyft, Inc. (NASDAQ: LYFT) and soon-to-be public rival Uber are technology companies. Both companies tout self-driving technology and the word “technology” appears throughout the Uber website.

Companies may view themselves through a certain lens and customers may agree with that view, but index providers don't have to agree. In the cases of Lyft and Uber, Standard & Poor's and MSCI, the index providers that maintain the Global Industry Classification Standard (GICS) don't view the ridesharing companies as technology firms.

Said another way, don't expect shares of Lyft and Uber when the latter goes public to reside in popular technology exchange traded funds, such as the Technology Select Sector SPDR (NYSE: XLK).

Why It's Important

In what may be a surprise to some investors and Lyft and Uber passengers, the two rideshare giants will be classified as industrial companies with sub-industry classification in the transportation group.

GICS “has assigned Road and Rail as Lyft’sprimary Industry (level 3)and Trucking as its primary sub-industry(level 4),” according to S&P. “The decision was based on Lyft’s Form S-1 filing, '(t)he Company generates substantially all of its revenue from its ridesharing marketplace that connects drivers and passengers.'”

As industrial stocks, Lyft and Uber could make their way to ETFs such as the Industrial Select Sector SPDR (NYSE: XLI). With the transportation designation, the two stocks could eventually reside in ETFs, such as the SPDR S&P Transportation ETF (NYSE: XTN) and the iShares Transportation Average ETF (CBOE: IYT). IYT tracks the widely followed Dow Jones Transportation Average.

What's Next

To be specific, GICS views Lyft and Uber as trucking companies. There are three qualifications to be considered a trucking company, one of which is passenger transportation, something Lyft and Uber are obviously engaged in.

To be classified as a road transportation firm, a company must meet one of four qualifications. Lyft and Uber meet two – carpool and vanpool exposure and taxi/livery services.

“We have taken this opportunity to have reviewed approximately 200 global public and private companies operating in the similar ride sharing business model as Lyft and Uber and reassigned their primary industry and sub-industry to conform with GICS’s Road and Rail and Trucking respectively,” said S&P. “We have further assigned more than half of those into sub-industries like Taxicabor Carpool and Vanpool Operations. For a few that are purely providing online transportation softwareor in the car rental business, we have also assigned them as such under either the Online Transportationor Passenger Car Rental.”

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