There are six months still to go before the Global Industry Classification Standard (GICS) enacts its planned changes on Sep 28, 2018 and gives communication services the status of a separate sector. The plan of MSCI is to go beyond telecommunication and give investors a broad-based exposure to the communication industry.
Investors should be happier to know that State Street Global Advisors has already filed for an ETF targeted at this to be independent sector. The fund is planned to hit the market in the name of Communication Services Select Sector SPDR Fund XLC. Upon approval, the fund will be the 11th member in its well-known suite of SPDR Select Sector ETFs. The expense ratio is yet to be decided.
Such moves are common for State Street as the company had rolled out a fund called Real Estate Select Sector SPDR (XLRE - Free Report) in 2015 on the heels of GICS reclassification for the Real Estate sector. Back then, real estate stocks were detached from the broader financial sector (read: What ETF Investors Need to Know About the New Real Estate Sector).
Inside the Latest Planned Changes
The rechristened communication sector (by S&P Dow Jones Indices and MSCI) will add the prevailing telecommunication companies plus companies hailing from the consumer discretionary sector currently categorized in the media industry group and the Internet & direct marketing retail sub-industry. Not only this, the index will have a focus on Information Technology sector too.
Media companies like Comcast Corp and Naspers Ltd, direct marketing retail companies like Netflix and TripAdvisor and IT companies like Alphabet Inc. and Facebook Inc. will get an entry into the index and thus into the proposed fund (read: Netflix Tops $100 Billion on Subscriber Surge: ETFs to Buy).
How Does the Proposed Fund Fit in a Portfolio?
According to MSCI,the latest changes follow recent unification of telecommunications, media, and Internet companies. These three areas hardly operate individually these days; rather they got interlinked or consolidated through mergers and acquisitions.
“Some of these companies also create interactive entertainment content and aggregate information that is delivered through multiple platforms such as cable and internet, as well as accessed on cellular phones,” per MSCI.
In a nutshell, the amalgamation of the concepts of telecom and media led MSCI to reclassify the telecommunication as communication sector. Since the world is thriving on different ways of electronic communications today, the fund is sure to be hit.
In any case, there are questions being raised about the mammoth success of a SPDR Select sector fund. After making a debut in October 2015, XLRE has amassed about $2.30 billion. So, the same level of success is expected for the likely newbie.
As far as competition is concerned, telecom ETFs like Vanguard Telecommunications Services ETF (VOX - Free Report) , media ETFs like PowerShares Dynamic Media (PBS - Free Report) and tech ETFs like iShares U.S. Technology ETF (IYW - Free Report) can pose some competition.
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