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Structure Matters Series: The Modern Way to Look at the S&P 500

Did you know that technology and communications, two GIC sectors that used to be combined as one, now together represent 38% of the S&P 500? This is neither good nor bad, just a factor that drives portfolio decision making by investors and active portfolio managers. The change was announced in 2017 and went into effect on September 28, 2018. This basically modernized the S&P 500, and arguably made investors more vulnerable to higher multiple stocks that also warranted greater growth rates to justify their valuations. Again, neither good nor bad – just an opinion. In the ETF Think Tank, we often discuss with financial advisors how to capture growth and different factors when building portfolios. In this new series written for MutualFunds.com, we focus on how “Structure Matters,” which simply highlights how security selection, much like the ingredients in a recipe, make up portfolio construction.

Screenshot ETF article
Graph Sector Make up
S&P500 Sector Make up (Source: XTF.com)
Bloomberg as 9-24-20 PE Multiple using XLK Index
Bloomberg as 9-24-20 PE Multiple using XLK Index
Breaking Down the S&P500 Index across sectors of industries (Source XTF.COM)
Breaking Down the S&P500 Index across sectors of industries (Source XTF.COM)
Growth Tilt of S&P 500 (Source XTF.Com)
Growth Tilt of S&P 500 (Source XTF.Com)
Technology sector generates very strong free cash flow

Conclusion