Business sectors are set for massive changes this fall

By Path Financial President and Chief Investment Officer Raul Elizalde

2018-06-04 14_05_27-Sector ETFs Are Set For Massive Changes This FallThe Global Industry Classification Standard (GICS) is a taxonomy system developed by MSCI and Standard & Poor’s that organizes companies into 11 economic sectors. This classification is applied to sector indices, which are in turn used to build ETFs and mutual funds that track them.

But the GICS system was created almost 20 years ago, and the world has changed a lot since then.

Facebook, for example, is no longer the online curiosity it was when it first started. It is now a huge delivery system for content, marketing and advertising. So it no longer seems appropriate that it should coexist in the same “information technology” box as Akamai, for example, which builds internet delivery networks and focuses on security and reliability.

To accommodate these changes the good folk at GICS have produced a preliminary list of more than 200 companies around the world that will be reclassified to reflect better what they actually do today. A final list will be published in July, and changes will be effective in September.

The technology sector will lose many big names to a new communications sector (a rebranding of the current telecommunications sector) such as Alphabet, Google and Twitter. Consumer discretionary will lose Comcast, Disney and Twenty-First Century Fox to communications as well.

These huge changes will fundamentally change the technology, communications and consumer discretionary sectors. Investors unaware of these changes will be in for a big surprise.

For example, the market cap of the communications sector will jump from today’s $1.7 trillion to perhaps as much as $10 trillion, according to a study from State Street, one of the largest ETF providers. Consumer discretionary and technology will shrink.

Additionally, as the State Street study points out, communications will be far more correlated to the S&P 500 than before. It will also include 13 stocks in the top 50% of returns in 2017, a huge change for a sector that today has a large proportion of high-dividend, defensive stocks. Furthermore, historical studies of sector volatility and correlation will be rendered largely useless. Investors who strive to build efficient portfolios using that data will find themselves in the dark.

ETFs, which have been the investors’ vehicle of choice to track indices, will be particularly affected. For example, State Street’s SPDR Technology Sector XLK, Consumer Discretionary XLY and Telecommunications XTL that track the S&P Select Sector indices (built around GICS) will be revamped to mirror the new compositions.

Vanguard, which also has sector ETFs (the Technology VGT, Telecommunications VOX and Consumer Discretionary VCR) structured as a class of their mutual funds adopted an interesting approach. Between May and September they will track custom MSCI Investable Market Transition indices to avoid sudden changes to the funds, in lieu of the current MSCI Investable Market Indices.

Fidelity’s U.S. sector ETFs track U.S.-only versions of the MSCI Investable Market Indices, which will change as well. On the other hand, some of Blackrock’s US-only sector ETFs will be unaffected, such as the Technology IYW and the Telecommunications IYZ, because they track US-only Dow Jones Sector indices that are not aligned with GICS. Adding to the confusion, Blackrock’s global sectors ETFs such as the Global Telecom IXP are linked to GICS definitions, and will change.

This is enough to make any investor’s head spin. What investors must remember is that some of the sector funds they use today may no longer represent their investment objectives after September. Keeping abreast of the upcoming changes will go a long way to avoid surprises down the road.

This analysis originally appeared in Raul Elizalde’s Forbes.com investment column. Click here to follow Raul on Forbes.

——————-

Raul Elizalde President Path FinancialRaul Elizalde is the Founder, President, and Chief Investment Officer of Path Financial, LLC. He may be reached at 941.350.7904 or raul@pathfinancial.net.

facebooktwittergoogle_pluspinterestlinkedintumblrmailby feather

Forbes Names Raul Elizalde as Contributing Columnist Covering Market Trends & Investing

Raul Elizalde President Path FinancialForbes has named Sarasota investment advisor Raul Elizalde as a full-time contributor for its website Forbes.com, which boasts a monthly digital readership of roughly 53.9 million. Elizalde has been a guest contributor for Forbes for over a year; beginning May 2018, he will write under his own byline (http://www.forbes.com/sites/raulelizalde) covering market trends, investment mistakes, and overlooked risks. His first column, “Sector ETFs Are Set For Massive Changes This Fall,” is already online at https://tinyurl.com/y8obut2r. Elizalde is the founder and chief investment officer of Path Financial, a Florida-registered investment advisory firm.

Elizalde focuses on analyzing historical trends to avoid current and future market risks and minimize investment vulnerability for his clients. As a former Wall Street strategist, Elizalde has advised portfolio managers across the US and the globe, and has made presentations at the World Bank, appeared as a market commentator on television (Reuters and Bloomberg TV) and has been quoted in the financial pages of The Wall Street Journal, The Washington Post, the Financial Times and The New York Times. Elizalde’s economic and investment analyses have been published online by some of the most respected financial media in the country, including Investopedia, Morningstar, Motley Fool, the Street and Yahoo! Finance. He also shares his insights monthly through Path Financial’s free, subscriber-based newsletter, “Straight Talk.”

In 2008, Elizalde relocated his family to Sarasota from New York City where his Wall Street career included positions as Global Fixed Income and Quantitative Strategist for ING Barings, Head of Research at Santander Investment Securities, and Fixed Income and Emerging Markets Strategist for Banc of America Securities. He holds an MS degree in engineering from University of Buenos Aires, Argentina, and an MBA degree from University of California at Los Angeles. He was licensed as a NYSE Supervisory Analyst and currently holds a NASAA 66 Investment Advisor Representative license.

Elizalde is the past chair and current member of the Asset Management Committee at State College of Florida. Path Financial, LLC, is located at 1990 Main St., in Sarasota, Florida, and is a Florida-registered investment firm, partnered with preferred account custodians Charles Schwab & Company and TD Ameritrade. For more information, call 941.350.7904, or connect on Twitter (@pathfin) and Facebook.com/PathFinancial.

facebooktwittergoogle_pluspinterestlinkedintumblrmailby feather

Raul Elizalde Selected as Contributor for Forbes.com Investment Blog

Raul cropped for facebookRaul Elizalde, President and Chief Investment Officer at Sarasota-based Path Financial LLC, has been selected as a guest columnist for Forbes.com, where he will regularly contribute to financial writer Lawrence Light’s investment advice blog. Elizalde’s first Forbes’ contribution was published May 23, 2017, on the topic of “Private Debt Mounts: Why We Should Be Worried,” and may be viewed at https://www.forbes.com/sites/lawrencelight/2017/05/23/private-debt-mounts-why-we-should-be-worried/#11f50b453c56.

Elizalde is also a contributing blogger under his own byline for Investopedia.com, and his economic and investment analyses have been published online by some of the most respected financial media in the country, including Morningstar, Motley Fool, the Street and Yahoo! Finance. He shares his insights monthly through Path Financial’s subscriber-based, electronic newsletter, Straight Talk (http://www.pathfinancial.net/contact.html).

Light is an award-winning journalist with a distinguished career that includes editorial and contributing writer positions with The Wall Street Journal, Forbes, Business Week, Money Magazine, and AdviceIQ.com website. His work has also appeared in Barrons, Fortune, Investopedia, Huffington Post, Yahoo Finance and more. In addition to his Forbes.com blog he covers the financial aspects of the Trump White House for CBS MoneyWatch.

Path Financial is a Florida-registered investment firm, partnered with preferred account custodians Charles Schwab & Company and TD Ameritrade. Path is rated “A+” by the Better Business Bureau, and is located at 1990 Main St., in Sarasota, Florida. For more information, call 941.350.7904 or connect at http://www.Facebook.com/PathFinancial.

facebooktwittergoogle_pluspinterestlinkedintumblrmailby feather