S&P, MSCI In Big Index Reshuffle
A massive overhaul of several of Wall Street’s most important stockmarket indices next year will see tens of billions of dollars of investor funds move, potentially impacting the share prices of some of the biggest names - such as Amazon, Netflix, Alphabet, Facebook, Twitter, Snapchat, AT&T, Verizon and others.
Under the changes shares of companies specialising in telecommunications, media and entertainment will be combined into a single sector in the revamp of stock market indexes, including the benchmark S&P 500.
Making the announcement, S&P Dow Jones Indices and MSCI Inc said the move reflects “an evolution in the way we communicate and access entertainment content and other information” and the dramatic integration of these industries through a wave of mergers and acquisitions.
The new sector schematic will take affect in late September 2018 and the names of the large-cap companies whose stocks will be impacted by the change will be announced in January, they said. The two index providers did not reveal which companies will be moved. But a list of candidates could include Facebook, Google's parent Alphabet, Netflix, 21st Century Fox, News Corp, and Walt Disney, Comcast and more.
The effect of the changes will be to broaden and rename the current telecommunications services sector to, simply, communications services.
The communications sector will encompass companies “that facilitate communications and offer related content and information through various mediums”, the announcement said. It will contain two sub-sectors — telco services and the second media.
Telecommunications services will include companies that provide telecoms, Internet and wireless services. So Verizon, AT&T, Amazon perhaps, Netflix?
The media group will move from its current home in the consumer discretionary sector to make up the new media & entertainment sub-sector, comprising companies including advertisers, broadcasters, cable and satellite providers, publishers, movie and entertainment companies and interactive home entertainment services. Netflix could find a home in this group, along with News, Fox, Comcast, Charter Communications, the many companies associated with the Liberty Global and Liberty Media empire of John Malone, The New York Times Co, WPP.
The changes come after the S&P 500 telcoms sector — which shrank to just three companies - AT&T, Verizon and CenturyLink, following a wave of consolidation — had been criticised as being too small and capable of being held hostage to sharp moves in the shares of any one of those companies.
Another impending change to the industry sectors will impact companies that operate digital marketplaces. Previously classified under information technology, those companies will now be classified under the internet retail group in the consumer discretionary sector, to better reflect their primary status as retailers, not tech companies. That could see Amazon in this group, along with a host of companies (Blue Apron).
“This is a huge deal,” Todd Rosenbluth, director of ETF and mutual fund research at CFRA told Reuters.
“Where a stock ends up and who it’s compared to can impact where money goes within captial markets.”
Stephen Massocca, senior vice president at Wedbush Securities in San Francisco, told Reuters the way index-tracking funds react will be most important.
“The only real implication for serious investors is going to be what kind of impact there is from any kind of particular index fund or fund that’s tracking an index, and the ultimate upshot, and that’s probably something that would be decided by each management company that has these funds,” he said.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.