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GICS Changes May Uncover Equal Weight Opportunity

BusinessMarketsGICS Changes May Uncover Equal Weight Opportunity
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After the US markets closed on Thursday, March 17, index heavyweights S&P and MSCI rolled out the latest changes to the Global Industry Classification Standard (GICS), which means many companies are moving from one sector to another and in some cases I am getting new. Industry classification in process.

As has been noted beforeSome of the sectors seeing the biggest changes include technology, financial services, and consumer discretionary. This trio combines for nearly half of the cap-weighted S&P 500 today. Amid expectations that the upcoming sector reshuffle could lead to greater concentration in cap-weighted exchange-traded funds, equal-weight strategies such as Invesco S&P 500® Equal Weight ETF (RSP) and its environmental, social and governance (ESG) counterpart, the Invesco ESG S&P 500 Equal Weight ETF (RSPE),

In a recent report previewing the GICS changes, Bank of America reiterated a preference for equal-weighting strategies, citing concentration risk.

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,As the GICS technology and discretionary sectors become more narrowly defined, market cap-weighted tech ETFs may become more concentrated,” according to the bank. “For example, we calculate that our coverage is among the top 5 information technology ETFs.” The average weighting of the stocks is 56%. We estimate that this will rise to 58% as stocks are removed from the technology sector and into other sectors such as financials and industrials. Similarly, discretionary ETFs can increase the weighting of their top five holdings from 49% to 51%.

As noted above, the reshuffling of sectors between tech and financial will be evident as many companies, many with fintech ties, are abandoning the former group for the latter. This will lead to more growth being experienced in the value-rich financial sector, but investors should be aware of other issues.

“Relative to current market cap, the S&P 500 Financials ETF could see an average 20% change in composition from funds added. The S&P 500 Tech ETF could see an 11% change in composition from funds removed. Industrials, Staples, Discretionary, among others Sectors may see more muted changes,” Bank of America said.

For investors who want to stay connected to technology while reducing concentration risk, Invesco S&P 500 Equal Weight Technology ETF (RYT) Interesting idea. RYT currently holds 78 stocks, the largest of which carries a weight of 1.77% as of March 13. While those numbers are likely to change after the GICS shift, RYT will retain its position as one of the least focused tech ETFs around.

Invesco S&P 500 Equal Weight Financials ETF (RYF) There is a game of equal weight on the financial. The ETF currently holds 68 stocks — a number that is likely to go higher on Friday morning. The allocation to its largest holding is 2.25%, which may increase or decrease with sector changes.

For more news, information and analysis, visit Portfolio Strategies Channel,

Read more at ETFrends.com.

The views and opinions expressed here are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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