- A new market sector has been introduced in the S&P 500.
- The new sector includes major companies like Facebook, Walt Disney and Google‘s parent company, Alphabet.
- With this change, you might want to reconsider your ETF holdings.
The S&P 500 began a new chapter on Monday, Sept. 24, 2018. For the first time in decades, a new market segment, the S&P Communications Services sector, was introduced.
Companies from three different sectors — telecommunications, technology and consumer discretionary — will be reshuffled into the new group. In addition to Facebook, some of the other big names affected by the change are AT&T, Verizon Communications, Google’s parent company Alphabet and the Walt Disney Company.
Take a look at the changes to come. Here are some steps you can take to adapt your portfolio to the changes and remain an informed investor.
1. Prepare: What You Should Know About the Tech Stock Reshuffle
Here are three important details about the tech stock restructure that should be on your radar:
- Alphabet and Facebook will comprise around 45 percent of the new index, according to CNBC.
- The technology sector will remain the S&P 500’s biggest influence, but its weight will fall from about 26 percent of the entire market to 21 percent.
- The weight of the discretionary sector will tumble from around 13 percent to 10 percent. Removing Netflix, Disney and other stocks from this sector will bump Amazon’s weight to 32 percent of its total, according to MarketWatch.
2. Review: Why You Might Want to Reconsider Your ETF Holdings
If you have ETF holdings, this restructure could wreak havoc on your portfolio. ETFs are among the most vulnerable to shifts by big tech stocks and sectors, so it might be time to reassess your investment strategy.
For starters, individual stock performance — i.e., Facebook, Alphabet, etc. — will continue despite reclassification. However, the realignment means each of the three sectors affected will become more concentrated, which could cause more volatility when big stocks make major moves.
The new S&P Communications Services sector might temporarily level the overall weighing in the S&P 500, but this won’t last forever. The telecommunications, technology and consumer discretionary industries keep growing, so it’s likely their weight will rise again.
After the reclassification, it’s possible your ETF holdings will no longer align with your investment strategy. For example, the new communications sector will consist of 61 percent growth stocks, compared with the 100 percent value stocks that were included in the telecom index, according to CNBC.
3. Take Advantage: Buffett Said to Get Greedy in Times of Fear
The first new sector in decades could cause a major upheaval, but this might be good for your wallet. As Warren Buffett said, “Be fearful when others are greedy, and be greedy when others are fearful.”
This might be your chance to scoop up more stock at a discounted price, so take advantage of it. As Buffett also said in a 2008 op-ed for The New York Times, “In short, bad news is an investor’s best friend.”
Click through to read more about Warren Buffett’s theory on bad news and investing.
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