Telecom exchange-traded funds (ETFs) are liquid instruments with exposure to companies that provide the infrastructure, products, and services that enable communication. The telecommunications sector includes mobile phone manufacturers and internet service providers along with companies that provide audio, video, and other services electronically. Telecom ETFs are sector ETFs that provide exposure to some of the companies in the telecommunications sector through long positions.
ETFs are liquid instruments that allow investors to hold a basket of stocks in their portfolio. This allows investors to diversify their holdings. ETFs are traded daily during market hours, and this makes them more liquid than mutual funds.
Telecommunications sector ETFs hold some notable companies such as AT&T Inc. (T), Verizon Communications Inc. (VZ), and Nippon Telegraph and Telephone Corp. (NTTYY). Investors seeking to share in the profits across the telecom sector while limiting the idiosyncratic risks of investing in a single company should consider investing in a telecom ETF.
- The telecom sector underperformed the broader market over the past year.
- The telecom exchange-traded funds (ETFs) with the best one-year trailing total returns are NXTG, IYZ, and IXP.
- The top holdings of these ETFs are Class B shares of Telefonaktiebolaget LM Ericsson, Cisco Systems Inc., and Class A shares of Alphabet Inc., respectively.
With the reorganization of the Global Industry Classification Standard (GICS) sectors in 2018, the telecom sector was turned into the communication services sector. The new sector contained many big names such as Meta, Alphabet, and Netflix, which had previously sat in the tech sector. As such, many of these ETFs will hold companies besides traditional telecoms.
There are six telecom ETFs that trade in the United States, excluding inverse and leveraged ETFs as well as ETFs with less than $50 million in assets under management (AUM). The telecom sector, as measured by the S&P Telecom Select Industry Index, has underperformed the broader market with a total return of -6.7% over the past 12 months compared with the S&P 500’s total return of 16.8%, as of Feb. 10, 2022. The best-performing telecom ETF, based on performance over the past year, is the First Trust Indxx NextG ETF (NXTG). We examine the three best telecom ETFs below. All numbers below are as of Feb. 10, 2022.
- Performance Over One-Year: 8.0%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 0.82%
- Three-Month Average Daily Volume: 43,586
- Assets Under Management: $1.0 billion
- Inception Date: Feb. 17, 2011
- Issuer: First Trust
The First Trust Indxx NextG ETF tracks the Indxx 5G & NextG Thematic Index and invests in large-cap companies that are developing or participating in the development of 5G technologies. The index has equal-weighted holdings, with 80% in 5G hardware and infrastructure and 20% in telecommunications service providers. NXTG is focused on U.S. large-cap communication services stocks and follows a blended strategy of investing in both growth and value stocks. The fund’s greatest exposure is to semiconductor, integrated telecommunication, and wireless telecommunication services. Its top holdings include Class B shares of Telefonaktiebolaget LM Ericsson (ERIC.B:OME), a Swedish networking and telecommunications company; Class A shares of VMware Inc. (VMW), a cloud computing and virtualization technology company; and BT Group PLC (BT.A:LON), a British telecommunications holding company.
- Performance Over One-Year: -1.9%
- Expense Ratio: 0.42%
- Annual Dividend Yield: 2.84%
- Three-Month Average Daily Volume: 816,227
- Assets Under Management: $379.5 million
- Inception Date: May 22, 2000
- Issuer: BlackRock Financial Management
IYZ targets the Russell 1000 Telecommunications RIC 22.5/45 Capped Index, an index of U.S. equities in the telecommunications sector. The fund specifically invests in U.S. telephone and internet products, services, and technologies companies. About 40% of assets are invested in communications equipment companies, with cable & satellite and integrated telecommunication services representing the bulk of the remainder. IYZ is a multi-cap fund investing in a combination of value and growth stocks. It is highly concentrated in a small number of names, with the top three holdings representing more than 46% of total invested assets. These holdings are Cisco Systems Inc. (CSCO), a networking hardware, software, telecommunications equipment company; Class A shares of Comcast Corp. (CMCSA); and Verizon Communications Inc. (VZ), the latter two of which are large telecommunications conglomerates.
- Performance Over One-Year: -3.7%
- Expense Ratio: 0.43%
- Annual Dividend Yield: 0.85%
- Three-Month Average Daily Volume: 24,052
- Assets Under Management: $249.9 million
- Inception Date: Nov. 12, 2001
- Issuer: BlackRock Financial Management
IXP targets the S&P Global 1200 Communication Services 4.5/22.5/45 Capped Index, comprised of global equities in the communication services sector. IXP also offers exposure to media, entertainment, social media, search engine, and video/gaming companies, in addition to telecom stocks. The fund offers targeted access to small, mid and large-cap companies. More than 45% of holdings represent the interactive media & services industry, with integrated telecommunication services and movies & entertainment companies representing the next largest portions of the portfolio. The top holdings of IXP include Class A shares of Alphabet Inc. (GOOGL); Class A shares of Meta Platforms Inc. (FB); and Class C shares of Alphabet Inc. (GOOG). Both Alphabet and Meta Platforms are major global technology conglomerates.
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