The Technology and Consumer Discretionary sectors will lose some of their key growth companies, and the Telecom sector will cease to exist later this month in the midst of a major change in GICS criteria, along with the implementation of a new “Communication Services” sector. Fund managers around the globe, especially those that track the aforementioned sectors specifically, will transact billions to rebalance their portfolios this month, generating volatility that could leave lasting marks on the S&P 500, just as it heads into the toughest time of year for equities.
By September 28, a reorganization of the Global Industry Classification Standard, or GICS, will shift many technology stocks from their traditional homes in the top-performing technology sector and into a deepened pool of telecommunications and media stocks. The largest-ever shakeup of the stock market’s broad business sectors will be the first change to categorization criteria and only the second sector addition since 1999. In effect, funds tracking the telecom, tech and consumer discretionary sectors will be forced to trade billions of dollars of stock to realign their holdings. While some funds have already begun to prepare for this paradigm shift, a pickup in volatility toward the end of September should be expected . . .