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ETF Specialist

Big Changes in Store for the Biggest Financial Sector ETF

Financial Select Sector SPDR ETF will be paying a special dividend as it adapts to reflect changes to its benchmark index.

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With nearly $16 billion in assets under management,  Financial Select Sector SPDR (XLF) is the largest fund offering investors exposure to the financial sector of the U.S. equity market. Following changes to the Global Industry Classification Standard and pending a change to its current benchmark, XLF is scheduled for a September makeover. Here, I will share some background on the recent redrawing of the GICS and walk through the forthcoming changes to XLF to help investors to navigate this transition and understand its implications.

First There Were Changes to GICS
On Nov. 10, 2014, index providers S&P Dow Jones Indices and MSCI announced the result of their annual review of the GICS structure. (GICS is an industry classification system jointly developed by the two firms, which was first introduced in 1999.) The most meaningful change springing forth from this review was the creation of a stand-alone real estate sector. According to the SPDJI and MSCI, this was largely driven by investor input. In the press release announcing real estate’s graduation to sector status, Remy Briand, managing director and global head of equity research at MSCI, stated that, “Investors told us that there are significant differences between public real estate and financial companies and therefore real estate deserves a dedicated GICS sector." Thus, the eleventh GICS sector was born.

Ben Johnson does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.