The stock market story this year revolves around artificial intelligence and technology funds. The Communications Services Select Sector SPDR ETF, worth $19 billion, is showing strong performance compared to the Technology Select Sector SPDR ETF, worth $70 billion. The fund consists of companies like Meta Platforms, Alphabet, Electronic Arts, Netflix, AT&T, Verizon Communications, T Mobile, Walt Disney, Warner Brothers, and News Corp.
The Communications Services ETF is essentially a technology fund, with 63% of its holdings classified as technology services companies. The decision to place tech giants like Meta and Alphabet in this sector instead of the technology fund they seem to belong to dates back to a 2018 review of the Global Industrial Classification Standards.
The decision was beneficial for most ETF investors, as it helped avoid diversification issues faced by the tech sector fund, which already makes up over a third of the stock market. IRS rules dictate that individual positions exceeding 5% of the fund’s assets cannot make up more than 50% of the holdings. This rule has led to challenges in overweighting certain stocks like NVIDIA or Apple.
This situation highlights the importance of thorough research before investing in an ETF or mutual fund, beyond just looking at the name and fees. It’s essential to understand the composition and holdings of the fund to make informed investment decisions.
Article Source
https://www.barrons.com/amp/articles/nvidia-stock-tech-communications-services-etf-3708b61d