Telecom exchange-traded funds (ETFs) provide investors with exposure to companies that make communication possible on a global scale. The telecommunication sector includes companies that create communication infrastructure and provide communication services such as phone, Internet, and cable. They enable the sending and receiving of data and information in formats such as audio, video, or text. Some notable companies in the sector include AT&T Inc. (T), Verizon Communications Inc. (VZ), and China-based Nippon Telegraph & 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 outperformed the broader market over the past year.
- The ETFs with the best 1-year trailing total return are VOX, FCOM, and IXP.
- The top holding of each of these ETFs is Facebook.
There are about 5 distinct telecom ETFs that trade in the U.S., excluding inverse and leveraged ETFs, as well as funds with less than $50 million in assets under management (AUM). The telecom sector, as measured by the S&P 500 Communication Services Sector, has outperformed the broader market with a total return of 16.6% over the past 12 months compared to the S&P 500's total return of 12.0%, as of November 3, 2020. Due to the sector reshuffling of the S&P 500 in 2018, the new S&P 500 Communication Services Sector now also provides exposure to sectors outside of telecommunications. However, it is still the closest match for gauging that sector's performance.
The best-performing telecom ETF for Q1 2021, based on performance over the past year, is the Vanguard Communication Services ETF (VOX). We examine the top 3 best telecom ETFs below. All numbers below are as of November 4, 2020.
- Performance over 1-Year: 17.0%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 0.92%
- 3-Month Average Daily Volume: 178,592
- Assets Under Management: $2.7 billion
- Inception Date: September 23, 2004
- Issuer: Vanguard
VOX tracks the MSCI U.S. Investable Market Telecommunication Services 25/50 Index, which consists of U.S. companies of various market caps within the telecommunication services sector. The fund offers a low-cost way to obtain broad exposure to telecom equities. Nearly half of the ETF's portfolio is allocated to the interactive media and services segment of the telecom sector. The fund is heavily weighted towards a handful of mega-cap companies, making it less diversified than some of its peers. The fund's top three holdings include Facebook Inc. (FB), a social media and networking platform; class C shares of Alphabet Inc. (GOOG), a multinational technology company and parent of Google; and Alphabet class A shares (GOOGL).
- Performance over 1-Year: 16.6%
- Expense Ratio: 0.08%
- Annual Dividend Yield: 0.83%
- 3-Month Average Daily Volume: 100,223
- Assets Under Management: $546.3 million
- Inception Date: October 21, 2013
- Issuer: Fidelity
FCOM tracks the MSCI USA IMI Communication Services 25/50 Index, which represents the communication services sector of the U.S. equity market. The ETF uses a representative sampling indexing strategy, which involves investing in a representative sample that collectively shares similar characteristics to the underlying index. The fund is focused on U.S. large-cap telecommunication stocks and follows a blended strategy of investing in both growth and value stocks. Its top three holdings include Facebook, Alphabet class C shares, and Alphabet class A shares.
- Performance over 1-Year: 15.7%
- Expense Ratio: 0.46%
- Annual Dividend Yield: 1.10%
- 3-Month Average Daily Volume: 19,047
- Assets Under Management: $316.9 million
- Inception Date: November 12, 2001
- Issuer: iShares
IXP tracks the S&P Global Telecommunications Sector Index, an index designed to measure the performance of the global telecommunications market. The ETF provides exposure to small-, mid-, and large-cap companies engaged in media, entertainment, social media, search engine, video/gaming, and telecommunication services. More than 67% of the fund's holdings are based in the U.S., while telecom equities based in China and Japan receive nearly 11% and 9% allocations, respectively. Nearly half of the fund's assets are allocated to Interactive Media & Services equities. IXP follows a blended strategy, investing in both value and growth stocks. The fund's top three holdings include Facebook, Alphabet class A shares, and Alphabet class C shares.
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