With the exception of Amazon, the other FANG stocks — Facebook, Netflix and Alphabet, parent of Google — are joining the new sector. Facebook and Alphabet are leaving tech and Netflix is departing consumer discretionary. Amazon will remain in consumer discretionary, and eBay jumps from tech to join it in the largely retail-oriented sector.
While it may sound like inside baseball, the changes in the S&P sectors should, over time, result in massive shifts in stock ownership as money managers realign their portfolios, ETFs restructure holdings, and Wall Street strategists give new weighting to both old and newly aligned industry groups. Some of the changes have already occurred, as there is already a new ETF , the Communications Services Select Sector SPDR Fund XLC, to reflect the sector.
Bottom line for investors is it may give a boost to the technology sector as big money managers end up underweight tech as Facebook and Alphabet leave the sector. There could also be new buying in some of the media and other stocks as managers add holdings in the communications services sector, and even as Netflix and Alphabet bring some of their momentum to the group.
"What you look at is managers have to look at where they're positioned versus their benchmark, and they can only be overweight or underweight by a certain amount," said Steven DeSanctis, equity strategist at Jefferies. "Large growth guys are going to underweight traditional tech. Small-cap growth guys have a big overweight in software."
The fact that some of widely held and followed FANG is a part of it makes some of the changes more profound. The changes take place at Friday's close but the current sectors will stay in place until the end of the quarter, a week later. Analysts expect the price-earnings ratio in tech to drop, as some of the high-flying names like Alphabet leave. CFRA says the market cap of the tech sector will shrink by about 19 percent.