It’s not your father’s stock index anymore.
S&P Dow Jones Indices and MSCI Inc., whose indexes are tracked by trillions of dollars stored in exchange-traded funds, rolled out a set of planned modifications to their business sector groupings this week. That will impact where businesses are grouped inside benchmarks like the S&P 500, and might alter what stocks are held in certain industry-focused ETFs.
The latest shifts reflect the way the corporate landscape has changed in recent years. Foremost, the indicator will update the telecommunications sector, which now looks like a relic of a previous era. The telecom industry made up 9.8 percent of the S&P 500 in 1989, but has shrunk to a 1.8% weighting, based on S&P Dow Jones Indices. After a long period of consolidation, it holds just three companies.
That means creating a new media and entertainment business group within it which will inherit the media companies currently classified in the consumer discretionary sector.
There are a couple of other changes. Internet retail, a sub-industry within the consumer discretionary sector, will absorb some e-commerce businesses that are currently in the tech industry. Also, the internet & software and solutions sub-industry in tech will be discontinued, with the firms being categorized elsewhere. A new tech sub-industry called internet services and infrastructure will also be created in its place.
More guidance is expected in January, when a few of the affected organizations are announced.
Some of those affected may include the large tech companies, given the upgrades to the tech industry, analysts say. This may also change what sector-tracking ETFs hold, though it’s going to be up to the ETF providers to decide how to account for those changes.
The real estate sector’s spin out from the financial industry may offer 1 template.
It remains to be seen how the sector shifts will impact investors, but it is clear index creators are attempting to keep up with the times.