June 19, 2018 / 1:08 PM / 5 months ago

New 'spider' ETF captures Facebook, AT&T in its web

NEW YORK (Reuters) - State Street Global Advisors said on Tuesday that it had launched an exchange-traded fund (ETF) that will track the recently refreshed communication services sector, which includes telecom and social media firms such as Facebook Inc (FB.O) and Verizon Communications Inc (VZ.N).

FILE PHOTO: A 3D-printed Facebook like button is seen in front of the Facebook logo, in this illustration taken October 25, 2017. REUTERS/Dado Ruvic/Illustration

The Communication Services Select Sector SPDR Fund (XLC.P) will belong to the group of SPDR funds managed by State Street, known as “spiders.” The new fund is a response to sweeping changes to the Global Industry Classification Standard, or GICS, an industry catalogue maintained by S&P Dow Jones Indices and MSCI Inc (MSCI.N).

The overhauled GICS will replace the old telecommunication services with the broader communication services sector, yanking large companies away from the information technology and consumer discretionary sectors as a result.

Communication services combines the likes of Google owner Alphabet Inc (GOOGL.O), Facebook, and Netflix (NFLX.O), with AT&T Inc (T.N) and Verizon Communications, according to a list released in January that named select companies.

“The underlying constituents have more of a growth tilt, whereas in the old telecom world they were considered value stocks,” said Noel Archard, global head of product for State Street ETFs. “It’s a pretty significant change.”

The communication services sector has underperformed the technology sector in 2018, according to Morgan Stanley research.

Index funds that track current GICS sectors will be forced to sell stocks once the new taxonomy is implemented. Archard said that the asset management arm of State Street Corp (STT.N) was taking steps to minimize the impact that such selling would have on capital gains and fund returns.

The GICS reclassification was announced in November 2017 and will take effect after the market close on September 21.

By launching the fund ahead of the reclassification deadline, Archard said State Street hoped to give investors time to decide how the new sector will fit into their portfolios.

Changes to the sector groupings will affect nearly 10 percent of the S&P 500 .SPX by market capitalisation, according to Archard.

The new fund brings State Street’s catalogue of U.S. sector-based “SPDR” ETFs to 33 funds with $168 billion in assets, the company said in a statement.

Reporting by James Thorne; Additional reporting by Trevor Hunnicutt, Editing by Rosalba O'Brien

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