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Will the GICS reclassification shift investor perception of the FAANG and BAT stocks?

Ben Paul
Ben Paul11/4/2018 05:23 PM GMT+08  • 7 min read
Will the GICS reclassification shift investor perception of the FAANG and BAT stocks?
SINGAPORE (Nov 5): Many years ago, when The Edge Singapore was still in its infancy, I had the good fortune of being seated next to Mark Mobius during a luncheon event. As we ate, I asked the renowned proponent of investing in emerging markets to explain
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SINGAPORE (Nov 5): Many years ago, when The Edge Singapore was still in its infancy, I had the good fortune of being seated next to Mark Mobius during a luncheon event. As we ate, I asked the renowned proponent of investing in emerging markets to explain the trailing performance of some his funds.

Without missing a beat, Mobius pointed out that some benchmark emerging market indices were dominated by certain large stocks, but that his funds were not allowed to be more than 10% exposed to a single stock in order to mitigate risk. Many of these large companies grew relatively quickly, and developed justifiably high market valuations. As his funds were not allowed to match the weighting of these stocks in the benchmark indices, they ended up underperforming.

Today, one could similarly argue that maintaining a broadly diversified portfolio of technology stocks would have resulted in investors failing to fully benefit from the huge upside in the so-called FAANG stocks — the acronym denoting Facebook, Amazon.com, Apple, Netflix and Google owner Alphabet. For one thing, under the so-called Global Industry Classification Standard (GICS), neither Amazon nor Netflix was ever part of the Information Technology sector. They were actually both grouped under the Consumer Discretionary sector.

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