(Bloomberg) -- The dominance of tech stocks in the S&P 500 is set to shrink next year after the index's overseer announced revisions that will reclassify the sectors of some major shares.
Payment processing companies currently classified as technology firms are poised to join the financial sector, while other tech names providing outsourcing or human resources support will be classified as industrial stocks, S&P Dow Jones Indices and MSCI Inc. said in a joint statement on Thursday.
The full list of companies affected is expected to be released by December, and the changes are planned to be implemented in March 2023.
The adjustments mean that the likes of Visa Inc., PayPal Holdings Inc. and Mastercard Inc. will shift from tech to the financial sector, according to Todd Rosenbluth, the head of research at ETF Trends.
“This will be a major impact for sector ETFs that have hefty exposure to these companies,” he said in an interview.
The regrouping will make tech exchange-traded funds such as the $50.7 billion Vanguard Information Technology ETF (ticker VGT) and the $47.6 billion Technology Select Sector SPDR Fund (XLK) more concentrated, and financial ETFs including the $45.9 billion Financial Select Sector SPDR Fund (XLF) more diversified, he said.
For instance, as of Thursday close, Visa was the fourth biggest holding of VGT at 2.8% and Mastercard was the fifth at 2.7%, Bloomberg data show. About 3.6% and 3% of XLK was invested the two companies, respectively.
The tech sector overall currently represents about 28% of the S&P 500, more than the weighting of the health-care and consumer-discretionary sectors combined.
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