There never has been a more fitting time to know exactly what’s in the ETFs and mutual funds your clients own. That’s because as of late September, some of the biggest names in technology, including Facebook and Google, no longer are classified as such.
Major changes in the Global Industry Classification Standard (GICS), developed by MSCI and S&P Dow Jones Indices, have reclassified those stocks.
Facebook and Alphabet, the parent company of Google, move to the new communications sector, joining AT&T and Verizon.
The new sector combines networks and content from the telecommunications, information technology, and consumer discretionary sectors. It’s the second major change in GICS classification system in two years when real estate was removed from financial services to become its own sector.
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In the latest reclassification, Netflix, Comcast and Disney also move to the new communications sector, but from consumer discretionary, where Amazon will remain, joined by Alibaba Group and eBay from the technology sector.
The S&P explained that the changes were “Acknowledging the convergence of telecommunications, media, and select internet companies and the overlapping services rendered by these companies, within the GICS Structure.”
Comcast, for example, provides home and cell phone service through its Xfinity division, competing against AT&T and Verizon, but it is also a broadcasting company, which acquired NBC Universal, competing against AT&T, which owns Time Warner.
Verizon owns Yahoo, a competitor to Google, which owns the Android operating system for cell phones.
“The lines are blurred as video and internet and phone service are offered by the same company,” says Todd Rosenbluth, senior director of ETF and mutual fund research at CFRA. The GICS sector changes are a “good reminder not to not be passive about indexes,“ says Rosenbluth.
Sector ETFs are expected to be most affected by the GICS changes.