Standard & Poor’s (S&P) Indices recently announced that they will be making some sector classification changes next year.
There haven’t been any changes since the new Real Estate Sector was added. Real Estate had been classified as an industry within the Financial sector prior to becoming its own sector. S&P makes adjustments periodically to keep up with our ever-evolving economy.
The system that they use is known as Global Industry Classification Standard (GICS). Currently, there are 11 different sectors which are broken down into separate industries and sub-industries. Individual stocks are placed into the sub-industry that is appropriate for their business.
The changes for next year will involve telecommunications and entertainment. Technology is evolving in a way that people tend to download movies and S&P has decided that it’s time to adjust the classifications accordingly.
“The GICS structure is evolving to stay abreast with the ever-changing business environment. Convergence between telecommunications and media companies is not just a trend, but a fact,” according to Sebastian Liebich.
For next year, the Telecommunications Services Sector will be renamed and more industries will be added. The new name is going to be the Communication Services Sector. The Communications Services Sector will have two Industry Groups: Telecommunications Services and Media & Entertainment.
Currently, many of the stocks in the entertainment industry are in the Consumer Discretionary Sector. The new Communications Services Sector will hold stocks that are currently in the Media Industry Group and the Internet & Direct Marketing Retail Sub-Industry.
Certain companies currently in the Information Technology Sector will also be added. Within the Information Technology Sector, the Internet Software and Services Industry will be eliminated.
The companies that will be affected will be announced in January, and the changes will go into effect in September 2018. The new GICS will still have 11 different sectors, but will have 24 Industry Groups, 69 Industries and 158 Sub-Industries once the change is completed.
If you use sector funds as a part of your investment strategy, you might want to review your holdings to see how you’ll be impacted. Sector funds are very useful tools for an investment portfolio. They have low costs like broad-based index funds, but allow investors to focus on specific sectors of the economy while maintaining diversification within that sector.
Kenneth Roberts is a Truckee-based Registered Investment Advisor. Information is at his blog at http://www.sellacalloption.com or 775-657-8065. The mention of securities should not be considered an offer to sell or solicitation to buy investments mentioned. Consult your investment professional to understand the risks and/or how the purchase or sale of these investments may be implemented to meet your investment goals. Past performance is no guarantee of future results.
