- Starting in September, telecom, tech, media, and entertainment companies will be combined into one S&P 500 sector called Communication Services.
- It’s set to be the most crowded sector in the market, according to equity strategists at Bank of America Merrill Lynch.
- Investors should buy currently underweight parts of the sector ahead of its formation and sell afterwards as a “rule of thumb.”
A new stock market sector will launch in September.
S&P Dow Jones Indices announced last November that it plans to bring tech, media, and entertainment companies under one umbrella called the Communication Services sector. This would replace the existing Telecommunication Services sector.
The firm explained that it’s making the changes to better reflect the fact that tech companies have become a lot more integrated. Verizon, for example, has made acquisitions to become a giant provider of content, cellphone service, and internet connectivity.
Tha poses a risk for investors, according to a team of Bank of America Merrill Lynch equity strategists led by Savita Subramanian. For example, Netflix, which is currently classified in the Internet & Direct Marketing Retail sub-industry, will be under the same roof as Alphabet and Facebook, which are currently in the Information Technology sector.
BAML’s survey of large fund managers shows that no other industry is as crowded as Internet & Direct Marketing Retail. This is the case even though active managers have reduced their exposure to these stocks over the last three months.
The strategists wrote: “As part of the changes, we expect some of the most overweight stocks in the two most overweighted sectors (e.g. FOXA, CMCSA, NFLX, FB and GOOGL) to be combined with Telecom in the Read More Here