08 Januar 2019
Exchange-traded funds (ETFs) will be the first to adapt these changes to reflect the new benchmark configuration, and history suggests that actively managed funds will follow suit. The change will mean that asset allocators will no longer be buying tech ETFs to expose themselves to FAANG stocks (Facebook, Apple, Amazon, Netflix, Google) and other Internet companies that enjoy structural growth.
The move puts an end to some traditional rules of thumb. The tech classification used to be a proxy for innovation, the consumer discretionary sector was about buying into consumer trends, and the telco sector harboured defensive and value stocks. The broadened communication sector is now a much healthier mix of growth and value names.
Source: Fidelity, Morningstar, as at 3 December, 2018. Characteristics are of the date given and should not be relied upon as current thereafter.
Overall, the new classification may help to rebalance key indices and benchmarks. The old telco sector had shrunk to just 1.7 per cent of the S&P 500 while tech had ballooned to 26 per cent. Now, the communication services sector makes up 10 per cent of the S&P 500. The constituents of this new sector are the companies that have been able to monetise the most essential, and most quickly evolving, human need - communication. Perhaps the only constant within this industry is the perennial innovation and constant disruption thanks to technological innovation. The pace of this change has accelerated materially, which makes the sector perfect for active stock picking.
The communication services category contains a multitude of narratives. The internet segment, which represents around 40 to 50 per cent of the sector, consists of innovative, growing companies with a potential for high returns. Meanwhile, the telecom segment, which is a third of the sector, is viewed as containing defensive, value stocks which have historically struggled to generate returns above their cost of capital. They are providers of infrastructure, similar to utilities, while the internet companies can be expected to innovate and disrupt organisations in other industries. The media segment is a bit of both. Similarly, while the internet segment faces higher regulation, the telecom group will probably experience a broader de-regulation over time.
Any asset allocator that invested in a communication sector ETF over the last five years (had it been available) would have done very well, as the chart below shows, despite the telecom segment of the benchmark significantly underperforming the wider S&P index.
Source: Fidelity International, Standard & Poor’s, FactSet, Credit Suisse, 30 November 2018. Price return indexed to 100 on 31 December 2013. Communication Services represents the performance of the S&P 500 Communication Services Companies as defined by MSCI’s new methodology from 31 December 2013 to 30 November 2018. The performance is based on the constituents available in the index on every single day since 31 December 2013. If new communication services companies entered the S&P 500 index then such stocks were included in the analysis and if existing communication services companies exited the index then such stocks were thereby removed from the analysis. Old Telecom represents the performance of the S&P 500 Telecommunication Services Index from 31 December 2013 to 30 November 2018. The above chart is for illustrative purposes only.
But beyond the simple choice between ‘value’ or ‘growth’ oriented stocks, the benchmark offers a unique combination of sub-segments, which lends it to a thematic investing approach. Investors will be making decisions based not just on ‘value’ or ‘growth’; but on specific themes such as Internet regulation, the impact of streaming video, and cloud gaming. Communication services is a new name to get used to in the market, and there is a lot in it.
Lesen Sie mehr
The value of investments and the income from them can go down as well as up so you may get back less than you invest. Past performance is not a reliable indicator of future results.
These materials are provided for information purposes only and are intended only for the person or entity to which it is sent.
These materials do not constitute a distribution, an offer or solicitation to engage the investment management services of Fidelity, or an offer to buy or sell or the solicitation of any offer to buy or sell any securities or investment product.
Fidelity makes no representations that the contents are appropriate for use in all locations or that the transactions or services discussed are available or appropriate for sale or use in all jurisdictions or countries or by all investors or counterparties.
Investors should also note that the views expressed may no longer be current and may have already been acted upon by Fidelity. They are valid only as of the date indicated and are subject to change without notice.
This material was created by Fidelity International. It must not be reproduced or circulated to any other party without prior permission of Fidelity.
This communication is not directed at, and must not be acted on by persons inside the United States and is otherwise only directed at persons residing in jurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity is not authorised to manage or distribute investment funds or products in, or to provide investment management or advisory services to persons resident in, mainland China. All persons and entities accessing the information do so on their own initiative and are responsible for compliance with applicable local laws and regulations and should consult their professional advisers.
This content may contain materials from third-parties which are supplied by companies that are not affiliated with any Fidelity entity (Third-Party Content). Fidelity has not been involved in the preparation, adoption or editing of such third-party materials and does not explicitly or implicitly endorse or approve such content.
Fidelity International refers to the group of companies which form the global investment management organisation that provides products and services in designated jurisdictions outside of North America Fidelity, Fidelity International, the Fidelity International logo and F symbol are trademarks of FIL Limited. Fidelity only offers information on products and services and does not provide investment advice personal recommendations based on individual circumstances.
Issued in Europe: Issued by FIL Investments International (FCA registered number 122170) a firm authorised and regulated by the Financial Conduct Authority, FIL (Luxembourg) S.A., authorised and supervised by the CSSF (Commission de Surveillance du Secteur Financier) and FIL Investment Switzerland AG, authorised and supervised by the Swiss Financial Market Supervisory Authority FINMA. For German wholesale clients issued by FIL Investment Services GmbH, Kastanienhöhe 1, 61476 Kronberg im Taunus. For German institutional clients issued by FIL Investments International – Niederlassung Frankfurt.
In Hong Kong, this content is issued by FIL Investment Management (Hong Kong) Limited and it has not been reviewed by the Securities and Future Commission. FIL Investment Management (Singapore) Limited (Co. Reg. No: 199006300E) is the legal representative of Fidelity International in Singapore. FIL Asset Management (Korea) Limited is the legal representative of Fidelity International in Korea. In Taiwan, independently operated by FIL Securities (Taiwan ) Limited, 11F, 68 Zhongxiao East Road, Section 5, Xinyi Dist., Taipei City, Taiwan 11065, R.O.C. Customer Service Number: 0800-00-9911#2.
Issued in Australia by Fidelity Responsible Entity (Australia) Limited ABN 33 148 059 009, AFSL No. 409340 (“Fidelity Australia”). This material has not been prepared specifically for Australian investors and may contain information which is not prepared in accordance with Australian law.