Style Drifter

Select Sector SPDR Changes

Style Drifter

ETF investors should know that a big rebalancing is on the horizon for the Select Sector SPDRs. On June 24 the nine Select Sector SPDRs will rebalance to look more like the ten Global Industry Classification Standard (GICS) sector definitions. GICS is a sector classification system developed jointly by index providers Standard & Poor's and MSCI to help facilitate consistent industry comparisons.

For more information on GICS on the MSCI website click here, for an interview with MSCI on GICS click here. S&P also has information on GICS here.

According to an announcement released on April 15, three of the Sector SPDRs will change their names, and approximately 20% of the constituent companies in the Sector SPDRs will be reclassified. According to Morgan Stanley, 114 companies in the S&P 500, or approximately 25% of its market capitalization, will be reclassified.

Currently, Sector SPDRs cover market segments such as energy or financials with the stocks are taken from the S&P 500. These exchange-traded funds were launched prior to the implementation of GICS, and some of them have experienced significant tracking error relative to the S&P 500 GICS sector indexes.

There are about $3.7 billion in assets under management in the Select Sector SPDRs, according to Morgan Stanley.

Morgan Stanley says an estimated 25% aggregate turnover in the Select Sector SPDRs would result in around $950 million in transactions.