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Changes Coming for Big Tech, Consumer ETFs

This article was originally published on ETFTrends.com.

Index providers Standard & Poor's and MSCI previously announced the creation of the communication services sector, an expanded, refreshed look at the old telecommunications sector. On Thursday, S&P Dow Jones Indices said the Communication Services Select Sector Index is up and running.

As the communication services sector comes to life, big changes are coming for some well-known consumer discretionary and technology exchange traded funds, including the Consumer Discretionary Select Sector SPDR (XLY) and the Technology Select Sector SPDR (XLK) . XLK, the largest technology ETF.

“Now that the Communication Services Select Sector Index is launched, here is what it looks like on the inside with return results based on ten years of backtested history.  The index has 26 constituents with a total market cap of $2.35 trillion, average market cap of $92.5 billion and median market cap of $34.9 billion as of May 16, 2018,” according to S&P Dow Jones Indices.

Communication Services Select Sector Index

The Communication Services Select Sector Index provides new definitions for integrated telecom services and wireless services providers as well as adding several sub-industries previously classified under the consumer discretionary sector.

For example, the new index adds media, entertainment, home entertainment and interactive media and services companies from the discretionary sector.

“There are 6 constituents from Information Technology with a total market cap of $1.24 trillion, 17 constituents from Consumer Discretionary with a total market cap of $856.6 billion and 3 constituents from Telecommunication Services with a total market cap of $254.2 billion,” said S&P.

Top 10 holdings in the Communication Services Select Sector Index include Facebook Inc. (FB), Alphabet Inc. (GOOGL), Netflix, Inc. (NFLX) and Walt Disney Co. (DIS) as well as Verizond Communications Inc. (VZ) and AT&T (NYSE: T). Over 89% of the new index are stocks currently residing in the discretionary and technology sectors.

“The Communication Services Select Sector Index returned a cumulative 143.5% through May 16, 2018 with annualized performance of 14.2% over 3 years, 12.7% over 5 years and 9.9% over 10 years.  The index also has a one year return of 11.6% and is up 3.8% year-to-date,” said S&P.

Those figures are based on a back-test period of late 2007 through April 30, 2018.

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