On September 20, 2021, the S&P Dow Jones Indices
announced that it will be making changes to the
Sector classification of several companies in the S&P 500
index.
The changes are set to take effect on September 24,
2021, and will result in a reorganization of the 11 sectors
that make up the S&P 500 index.
The changes will impact some of the largest companies
n the index, including Alphabet (Google), Facebook
and Berkshire Hathaway
The changes in sector classification highlight the
importance of managing sector allocations in an
investment portfolio
The S&P 500 is a widely used benchmark for the U.S.
stock market, and many investors use it as a guide for
building their portfolios.
The index is composed of 500 of the largest publicly
Traded companies in the U.S. and is weighted by market
capitalization.
The 1 1 sectors that make up the index are: Consumer
Discretionary, Consumer Staples, Energy, Financials,
Health Care, Industrials, Information Technology (IT),
Materials, Real Estate, Telecommunication Services,
and Utilities.
The changes to the sector classification will affect the
Financials and IT sectors in particular
The Financials sector will lose one company, State Street
Corp., which will be moved to the newly created Financial
Technoloav (FinTech) sector. The IT sector will gain three companies, including
Alphabet (Google), Facebook, and Meta Platforms
(formerly known as Facebook).
The addition of these companies to the IT sector is a
reflection of their primary business operations, which are
focused on technology and communication services
Investors should pay close attention to the sector
classification of companies in their portfolios, as changes
in sector classification can impact portfolio diversification
and may require a reevaluation of sector allocations.
For example, if a company is moved to a new sector, it
may impact its correlation with other companies in the
portfolio, which could increase or decrease risk.
It is also important to understand that changes in sector
classification may be driven not only by changes in
company operations but also changes in classification
criteria.
Therefore, investors should stay informed about updates
to sector classifications and review their portfolios
accordingly.
Overall, the changes to the sector classification of the S&P
500 highlight the importance of managing sector
allocations in an investment portfolio
Investors should take into account the sector affiliation of
each company and its impact on the sector balance of
their portfolio, as well as stay informed about updates to
sector classifications and review their portfolios
accordingly.
