Important Changes Coming to Consumer Discretionary and Staple ETFs

JThe changes are still a long way off, but MSCI and S&P Global recently announced notable changes to the Global Industry Classification System (GICS). These changes will likely result in a new look for various consumer discretionary and staple exchange-traded funds.

These include the elimination of the Internet retail and direct marketing sub-sector and the merger of general merchandise stores and department stores into a new group known as general retail. .

“The demarcation between general merchandise stores and department stores has also diminished as both formats are comprised of retail spaces selling primarily consumer discretionary goods,” according to a statement issued by index providers. “Retailers that generate the majority of revenue or profit from consumer staples such as food, household and personal care products warrant consolidation in the consumer staples sector.”

Perhaps the most notable move among individual stocks is to move Target (NYSE:TGT) into consumer discretionary consumer staples. Dollar stores Dollar General Inc (NYSE:DG) and Dollar Tree Inc (NASDAQ:DLTR) are also making this move.

“A shortlist of large-cap companies affected by the changes will be announced no later than June 30, 2022. The full list of companies affected by these changes will be made available to clients no later than December 15, 2022,” adds MSCI. and S&P.

Target and the pair of dollar store operators currently combine for more than 6% of the capitalization-weighted consumer discretionary indexes, indicating that the shift to consumer staples is significant. These stocks are likely joining a new subsector known as consumer staples retail.

“Retailers offering a wide range of consumer staples such as food, household and personal care products,” according to the index providers. “This sub-industry includes hypermarkets, supercenters and other retailers of consumer staples such as discount retail spaces and online marketplaces selling primarily consumer staples.”

The changes are expected to take effect on March 17, 2023.

Among the ETFs that could be affected by the moves are the Invesco S&P 500 Consumer Discretionary (RCD) Equal Weight ETF, Invesco S&P SmallCap Consumer Discretionary ETF (PSCD), Invesco S&P 500 Equal Weight Consumer Staples ETF (Right) and the Invesco S&P SmallCap Consumer Staples ETF (PSCC). Each of these ETFs tracks S&P indices. Invesco also issues several other discretionary and core ETFs that do not track MSCI or S&P indices, such as the Invesco DWA Consumer Staples Momentum ETF (LSP)that could be affected by the moves.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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