Big Tech Reshuffle & A New FANG ETF

Google’s parent Alphabet (GOOGL – Free Report), Facebook (FB – Free Report) and Twitter (TWTR – Free Report) will leave the tech sector of the S&P 500 today in a major sector reshuffle. With the reshuffling, Apple (AAPL – Free Report) and Microsoft (MSFT – Free Report) will get more representation in popular tech ETFs and index funds while Amazon’s (AMZN – Free Report) weight will go up further in consumer discretionary ETFs.

S&P Dow Jones and MSCI had announced major changes in the Global Industry Classification Standard (GICS) last year, which are taking place now. These changes will impact many high-flying technology and media stocks and related funds.

Technology sector’s weight in the S&P 500 will go down from about 26% currently to 21%. Media stocks–Netflix (NFLX  – Free Report), Walt Disney (DIS  – Free Report) and Comcast (CMCSA)–will leave the consumer discretionary sector, sending its weight down to about 10% from 13% currently.

(Image Source: FT)

Overall, these changes will impact about 10% of S&P 500’s market capitalization as 23 companies worth $2.7 trillion in market capitalization are being reshuffled.

The old Telecom sector is being renamed and broadened as the new communication services sector. It will now be home to three out of four original FANGs. Alphabet, Facebook, and Netflix together have about 50% weight in the new Communication Services Select Sector SPDR Fund (XLC  – Free Report).

Telecom sector is traditionally seen as a defensive sector and a value play. The revamped communication services sector will be seen as a cyclical sector with much stronger growth prospects.

Telecom currently has a dividend yield of about 5% and many income-oriented investors bought these funds just for juicy dividends. The new communication services sector’s yield will be just about 1.5%.

Per State Street Global Advisors, communication services will hold a majority —61% — of growth stocks, whereas the current telecommunications services sector consists of 100% value stocks. Allocation to growth stocks in consumer discretionary sector will also go up.