- Volatility will hit a select group of large-cap stocks, including Facebook.
- If you own these five popular ETFs, your money will be affected.
- See why ETFs are "pure portfolio poison" and how you can demolish their returns.
Chances are you own one of the following ETFs. After all, they are the most popular consumer and tech ETFs on the market.
But this week, they are selling their holdings in some of the biggest and best stocks on U.S. exchanges. Make no mistake, it's a move that will affect your money...
Investors were warned over the summer this move would create volatility. But you may not be aware of just how drastic this move is.
The Global Industry Classification Standard is changing how we classify stocks, including some of the biggest companies in the world. Even FANG stocks like Facebook Inc. (NASDAQ: FB) and Alphabet Inc. (NASDAQ: GOOGL) are changing classification.
These companies will no longer be classified under the "Technology" sector. Instead, they'll be moved to new category called "Communication Services."
That may sound like an insignificant tweak to how these stocks are labeled, but billions of dollars are being moved to accommodate the shift.
It's the biggest shift of its kind. Ever.
From now on, if you buy a tech ETF, you won't be getting exposure to companies like Facebook and Google.
And to accommodate the change, ETFs are selling off shares of the reclassified companies, which means if you own one of these five ETFs - or even the reclassified stock - your money is on the line.
Here are the top five ETFs hit by the change - and how you can turn this into an opportunity for a financial windfall by knowing what to do...
These 5 ETFs Are Selling Stocks Thanks to the Reclassification
This shakeup is huge. A total of 26 companies will be reclassified into the new communication services sector.
Facebook and Google alone make up nearly 5% of the entire S&P 500.
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That means consumer, telecommunications, and tech ETFs are selling off shares of these companies, while new ETFs tracking the communication services sector will begin popping up.
Any ETF holding these stocks is impacted.
And to help you find out if an ETF in your portfolio is selling, we've made a short list of the five ETFs selling shares of large-cap stocks thanks to the reclassification:
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- Technology Select SPDR Fund (NYSEARCA: XLK)
- Vanguard Information Technology ETF (NYSEARCA: VGT)
- iShares S&P Tech Sector Index Fund (NYSEARCA: IGM)
- iShares Dow Jones US Technology Fund (NYSEARCA: IYW)
- Vanguard Consumer Discretionary ETF (NYSEARCA: VCR)
These aren't the only ETFs affected, but they are some of the most popular. If you're holding one of these ETFs or any ETF in the tech or consumer discretionary sector, it's worth checking to make sure they are tracking exactly what you want them to be tracking.
But this list also shows you why ETFs aren't the passive investing miracle they are championed to be.
Investors have piled their money into more than 1,500 ETFs thanks to their low fees and market-matching returns.
That could be a costly mistake.
In fact, Money Morning Special Situation Strategist Tim Melvin calls them "pure portfolio poison."
You see, many ETF investors are lulled into believing these investments are safe or come with little or no risk. That just isn't the case.
Because they hold every stock in an index or sector, you're exposed to risky stocks, unprofitable companies, or the whims of whoever decides which companies belong in which sectors.
Think about how many investors will mistakenly believe owning a tech ETF gives them exposure to Google, or who think owning a telecom ETF gives them exposure to AT&T.
It's also why Tim says "millions of people are doomed to grind out subsistence-level retirements with subpar returns."
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