Facebook is no longer a ‘tech’ stock

A major reshuffling of how stocks are labeled and categorized on Wall Street could prompt some investors to adjust their portfolios. The big change is creation of a new sector, Communication Services. The sector in the Standard & Poor’s 500 replaces the Telecommunication Services sector but adds a number of well-known tech and media stocks from the Information Technology and Consumer Discretionary sectors. Here are the takeaways for investors.

❚ Index investors won’t be impacted: Just because some stocks in the the S&P 500’s 11 sectors have been shuffled, it won’t impact the price movements of the capitalization-weighted S&P 500, which will still rise and fall based on daily movements of the same 500 stocks.

❚ Tech sector shrinks: The weighting of tech stocks will shrink to roughly 20 percent from about 26 percent of the large-company stock index. But while tech will remain the largest sector, popular and strong-performing names such as Facebook and Google parent Alphabet – longtime members of the tech sector – will be moving to the new Communications Services grouping. The new sector will have a 10 percent weighting in the S&P 500.

❚ Communications Services less defensive: With the addition of growth stocks such as Facebook and Netflix, which is exiting the Consumer Discretionary sector, the new sector will be less defensive and offer a smaller dividend yield than the old telecom sector, which offered more than 5 percent. That means investors should not consider the new sector a so-called “bond proxy.”