Communications Sector

London, Germany

State Street lists updated communication sector ETF

Sector ETF powerhouse State Street is listing a new ETF in Germany and London that tracks the newly formed S&P communication services sector. The SPDR S&P U.S. Communication Services Select Sector UCITS ETF (SXLC:LN, ZPDK:GR) will track the freshly minted US Communication Services sector, which is made of S&P 500 companies judged to be part of this new sector by S&P.

The new communications services sector replaces the old telecommunications sector, which was viewed as increasingly redundant in the internet age. The new sector will include telecom services, media and entertainment companies and be the third largest by market value, taking 13% of the S&P 500. The fund will hold 60 companies, including Disney, Netflix and Comcast all of which are leaving consumer discretionary and judged to fit into communications services.

Analysis – big moment

With so much focus these days on smart beta funds, investors can forget just how popular sector ETFs are. After all these years, State Street’s sector ETFs are still big asset holders. Below is what its biggest ten look like in asset terms in the US.

XLF Financial Select Sector SPDR Fund $32.60B
XLK Technology Select Sector SPDR Fund $22.74B
XLE Energy Select Sector SPDR Fund $18.26B
XLV Health Care Select Sector SPDR Fund $17.58B
XLY Consumer Discretionary Select Sector SPDR Fund $14.69B
XLI Industrial Select Sector SPDR Fund $12.74B
XLP Consumer Staples Select Sector SPDR Fund $9.26B
XLU Utilities Select Sector SPDR Fund $7.84B
KRE SPDR S&P Regional Banking ETF $5.41B

(The big numbers inside these ETFs should also serve as a reminder for anyone who thinks State Street is dead in ETF land). The money in sector ETFs dwarfs that in the new wave of smart beta ETFs, and sector ETFs – like factor funds – are meant to be rotated (in theory at least) rather than held long term.

By our estimates, around $60bn sector ETF assets will be affected as a result of this change. But from what data is available it seems unlikely that changes to the sector indexes will have too great an impact on owners of ETFs or on the share prices of companies getting moved around.