State Street Global Advisors on Tuesday launched the Communication Services Select Sector SPDR Fund (XLC), an index-tracking exchange-traded fund aligned with the expanded telecommunication services sector that will soon include selected companies from the information technology and consumer discretionary sectors. As a result, the telcom sector will be renamed the communication services sector.
The changes, which go into effect at the close of business on September 21, were announced last year by S&P Dow Jones Indices and MSCI during their review of the Global Industry Classification Standards (GICS).
As part of this reclassification, online marketplaces for consumer products and services will shift from the information technology sector to the consumer discretionary sector.
In addition to investing in traditional telecom services providers, the new XLC fund can invest in companies involved with interactive media, interactive home entertainment, online marketplaces, traditional media, and movie and entertainment.
And that’s reflected in XLC’s portfolio, where top holding comprise Facebook (20.6 percent), both share classes of Alphabet’s stock (weightings of more than 11 percent for each), AT&T (6 percent), Netflix (4.8 percent) and Charter Communications (4.7 percent). The rest of the top 10 includes Activision Blizzard, Walt Disney, Comcast and Verizon Communications.
XLC has 26 holdings, and its net expense ratio is 0.13 percent.
As part of the GICS restructuring involving the information technology and consumer discretionary sectors, State Street will rebalance the Technology Select Sector SPDR Fund (XLK) and the Consumer Discretionary Select Sector SPDR Fund (XLY) to reflect changes to their underlying indexes, effective at the close of business on September 21.
“Existing shareholders of XLK and XLY do not need to take action at this time; however, investors will likely want to analyze their sector positions,” said Noel Archard, global head of product for State Street ETFs, in a press statement.
State Street says both XLK and XLY will retain a higher allocation to growth stocks than the broader market after the rebalancing. Meanwhile, the composition of the new communication services sector ETF will be growth-focused, with 61 percent of the constituents classified as growth stocks by Morningstar.
GICS is a four-tiered industry classification system created in 1999 consisting of 11 sectors, 24 industry groups, 68 industries and 157 sub-industries. The last major change to this structure was in 2016 when the 11th sector—real estate—was carved out of the financials sector. That led to the creation of new funds focused on the new real estate sector, along with the rejiggering of existing funds focused on the financials sector.