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Meet The Sector Disruptors

Nov. 05, 2017 12:59 PM ET
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  • Equity sectors themselves have rarely changed, but the composition of companies within each sector evolves over time as we transition from one economic era to the next
  • We believe that we are in the early stages of a period of significant disruption, given rapid advancements in technology and changing demographics and consumer preferences
  • Rather than waiting for traditional sector funds to evolve to these new paradigms, investors can potentially pre-empt these changes by targeting Sector Disruptors: thematic ETFs investing in companies that are well-positioned to be a step ahead of the status quo by developing transformational technologies or catering to a rising consumer base

From the outside, equity sectors have been relatively consistent over time. While the economy evolves, Consumer Discretionary companies are always there to help us spend our disposable income. Energy firms are always there to fuel our vehicles to get us from point A to point B. In fact, in recent history, there has only been one major change to the Global Industry Classification Standard (GICS), which was to break out Real Estate as a distinct sector from Financials in 2016.1 As we discussed in our CIO Insights: Sector Investing and Correlations, the constancy of sectors over time can be valuable to investors looking to manage macro-level risks and correlations.

Yet within each sector, change is unending. As powerful structural themes emerge, one era gives way to the next, and former sector bellwethers are often left behind. The desktop computer giants of the 1990's, like Dell and Compaq, were ultimately replaced by the mobile device makers and social media companies of the 2010's, like Apple and Facebook. This is part of natural economic Darwinism. Comparing major sector indexes to their compositions 18 years ago shows just how much sectors can organically change over time. The 2016 composition of the sector indexes referenced in the graph below

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Founded in 2008, Global X is a sponsor of exchange-traded funds (ETFs). We are distinguished by our Thematic Growth, Income, and International ETFs. Explore our insights on the trends and themes shaping global markets – from technology to commodities to emerging economies – at globalxfunds.com/research. Global X ETFs is a member of the Mirae Asset Global Investments Group. Important disclosures: globalxfunds.com/privacy

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