It is not a stretch to say that technology has fundamentally changed the way we live. Not only changing the mode of communication (phones, email, text) but how we connect (social networks), the language we use (emojis and in a certain number of characters or less), how we shop (Amazon), how we pay for things (Paypal, Square, Venmo), or even the basic economic model of ownership versus use (Uber, Netflix, Spotify). Thus, it is also not a stretch to understand that the way we categorize these businesses must change. As we have discussed in prior posts, at the end of next week the way the stock market organizes its sectors (called GICs) will adjust to move several well-known companies out of Technology and into other categories that better fit their role in our lives. Going away is the old sector Telecommunication – a sign that the “landline” is dead. It represents only 1.9% of the S&P 500 at this point. It will be renamed Communication Services and include amongst its ranks Facebook and Alphabet (aka Google). Again Communication will represent a meaningful sector of the equity market at 10% (and not be the interest rate sensitive, dividend paying, slow growth sector of yesteryear). Amazon will find its rightful place in Consumer Discretionary (and represent about one-third of the sector). While these are no longer “Technology” companies it is a stark reminder that, to compete in the future, all companies are Technology companies.
It is also a good reminder that index investments are not passive. The world (financial and otherwise) is constantly evolving. Index constituents change. Expense ratios have been moving lower through new product launches. Trading volumes (liquidity) shift. Not to mention valuation and the need to rebalance. There are actually more index funds trading in the US market today then there are individual stocks! What never changes is the importance of understanding the fundamentals of what you own and staying diligent through time.