Ladies and Gentlemen: the most significant shakeup in sector classifications within the past decade has just occurred. Two of the world’s biggest index providers — Standard & Poor’s (S&P) and MSCI, Inc. — have reorganized critical sector indexes.
It’s a good time to take stock of what you really own so you know which team to cheer for. Some of your favorite teams have traded away a number of “Hall of Fame” players. No worries, this updated ChartPack (our most significant since 2013) will help you make all the necessary adjustments.
We’ve added the new SPDR Communications Services Sector Fund (XLC) and realigned those sector funds that ripped Facebook and Google (Alphabet) from their ranks. For example, Technology (XLK) has lost some of its biggest stars!
The importance of this cannot be overstated. In our books, Grayson and I always preached that getting the sector selection right provided the foundation for the majority of your profitable investments. Getting it wrong could be painful.
For example, over the past 10 years, if you were in Consumer Discretionary (XLY) or Technology (XLK), you should have made a lot of money. On the other hand, if you were in Financials (XLF) or Energy (XLE), chances are you did not make much money. Our point is that you need to stay on top of what is happening in the market sectors where the institutional money is flowing.
There has been a significant shift in sector weightings relative to the S&P 500. For example, Technology (XLK) previously accounted for 25.6% of the S&P 500. Now, the new weight is down to 20.1%. Similarly, Consumer Discretionary was 12.7% and is now 10.0%. Of course, the new Communication Services Sector ETF (XLC) has gone from 0.0% to 10.2% overnight. Here are just a few of the updates in the ChartPack:
THIS QUARTER’S ENHANCEMENTS
ChartList #400 Sectors / Master List:
This ChartList has added the new Communication Services Sector SPDR (XLC) which includes heavyweights such as Facebook, Alphabet, Disney, Netflix, Charter Communications, Activision, Electronic Arts, AT&T, and Verizon. Clearly, an important sector of the market of which you need to keep abreast.
#401 Consumer Discretionary SPDR:
I’ll use Consumer Discretionary SPDR (XLY) as a model example for all the other sector ChartLists. You will note that the largest holdings have been updated and are reflected in both the PerfChart as well as individual equities (the top holdings) which each have their own charts. In the ChartList notes, you’ll see specific percentages. For example, Amazon (23%), Home Depot (10%), McDonald’s (6%), etc. These reflect both the impact and the allocation that these equities have upon this Consumer Discretionary Sector SPDR (XLY). Don’t overlook the fact that this ChartList also has four sister sector ETFs included in the ChartList.
Vanguard Consumer Discretionary Sector Fund (VCR)
Blackrock Consumer Discretionary Sector Fund (IYC)
Invesco Equal Weight Consumer Discretionary Sector Fund (RCD)
iShares Global Consumer Discretionary Sector Fund (RXI)
Similarly, the same additions and adjustments have been made to ChartLists #402 (XLI), #403 (XLU), #404 (XLB), #405 (XLP), #406 (XLK), #407 (XLE), #408 (XLV), #409 (XLF), #411 (XLRE), and #413 (XLC).
NEW! #413 Communication Services Sector SPDR (XLC)
This is the new creation. The Sector Fund has pulled key equities from other sectors and given them a new home here. The composition is as follows:
- Facebook (17.2%)
- Alphabet C (11.7%)
- Alphabet A (11.5%)
- Charter Communications (4.5%)
- Disney (4.7%)
- Netflix (4.5%)
- Electronic Arts (4.5%)
- Activision (4.5%)
This ChartList also includes two sister ETFs. Vanguard Communication Services Sector ETF (VOX), as well as iShares Global Communications Services Sector ETF (IXP). For those of you unfamiliar with our “sisters Strategy”, you should either refer to our book (Tensile Trading) or, at the very least, some of our past “Traders Journal” blogs.
#450 US Dow Industry Groups
Understanding how all these massive changes in indexes and industry groupings will affect your investments is something that will take some effort. A powerful routine that Grayson and I use is to sort this ChartList of all 152 Dow Industries by one-month performance. Presently, it will highlight strength in aerospace and telecommunications, along with weakness in home construction and real estate which — surprise, surprise — does not jive with all the bullish press about real estate. In any event, make this ChartList part of your routines. You’ll be pleased you did!
LESSON: It’s fine to be a fundamentalist investor, but you still need a modicum of charting acumen; otherwise, when the market speaks, you’ll be deaf. — Gatis Roze
Request for ChartPack Users: We would like to solicit your opinions and thoughts as to how and why you use the ChartPack. The user community now numbers in the thousands, and we believe your fellow investors would like to hear from other users. Please send your comments and thoughts to firstname.lastname@example.org. We’ll assemble your input into a future Traders Journal blog and share it with the entire community.
#420-12 to 420-90 - Fidelity Sector Portfolios
Each quarter, we spend a significant amount of time pouring over the recently updated Fidelity listings for all 40 of their Select Portfolio funds, diligently comparing last quarter’s holdings to the new releases. We look to these funds as an interesting source of tradable ideas, a way to see where and how the big money on Wall Street – some of the largest and most well-researched managers – are deploying their capital. Each quarter, this painstaking analysis yields some remarkable insights, and each quarter, we walk away with a host of actionable ideas.
Sometimes, however, the takeaways can be found in what the funds are NOT doing.
Yes, you read that right. “…in what the funds are NOT doing”. The most notable observation from this quarter’s update was the shocking number of unchanged funds – Select Portfolios with no change in their top 10 holdings. We noticed more unchanged funds than in any quarter in the past five years.
Not only that, but we also noticed that this quarter saw more funds adding to previous positions than ever before. As you may know, we keep track of the stocks that were dropped from each fund’s top 10 holdings list in the latest quarter. When a stock was dropped last quarter but reappears this quarter, we note that down as an “added back” position. In our time tracking these Fidelity fund moves, we’ve never seen this high a number of “added back” positions.
This gives us a unique insight into the vibe of the “smart money” folks. With all of the sector reclassifications, the changing market tides, and a distinct shift in the investment landscape, this did not seem to be an aggressive quarter for the Fidelity teams. That observation was not only intriguing but also unusual.
That said, here are three interesting notes about a few specific moves:
- The Materials fund added a BIG position in a large paint company. Be sure to check out that fund and take a look at the chart.
- The Technology fund reduced its total position number by a very significant percentage, but it also saw a major shakeup in its top 10 holdings list. Among the changes were big new positions in two FAANG members, while EA and TSLA got the boot.
- One stock that popped up as a new holding across quite a few funds was PG&E (PCG). When you see a company with widespread support like this, it can be an interesting sign and a nice boost for the stock. If you like the chart, this one might be worth watching.
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Trade well; trade with discipline!
- Gatis Roze, MBA, CMT
- Grayson Roze, Business Manager, StockCharts.com