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.

Key Takeaways

  • The telecom sector slightly outperformed the broader market over the past year.
  • The ETFs with the best 1-year trailing total return are VOX, FCOM, and XTL.
  • The top holdings of the first two of these ETFs are class A shares of Facebook Inc., and the top holding of the third ETF is Cogent Communications Holdings Inc.

Some telecom ETFs hold stocks of companies that are not traditionally thought of as belonging to the telecom sector, such as Facebook Inc. (FB), Twitter Inc. (TWTR), and Google parent Alphabet Inc. (GOOGL). The services that these companies offer have blurred the lines between traditional and newer forms of communication. Partly for that reason, the S&P 500 was reorganized in 2018. This move resulted in the elimination of the traditional telecom sector and the creation of a new communications services sector, broadening the communications category to include services like social media platforms. The reorganization was also partly due to the lack of representation in the telecom sector, which was comprised of just three stocks: AT&T, Verizon, and CenturyLink Inc. (now Lumen Technologies Inc. (LUMN)) -- at the time.

There are 7 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 Index, has slightly outperformed the broader market with a total return of 42.2% over the past 12 months compared to the S&P 500's total return of 42.0%, as of May 18, 2021. While this new S&P 500 Communication Services Sector provides exposure to sectors outside of telecommunications, it is still the closest match for gauging that sector's performance.

The best-performing telecom ETF, based on performance over the past year, is the Vanguard Communication Services ETF (VOX). We examine the best 3 telecom ETFs below. All numbers below are as of May 19, 2021.

Vanguard Communication Services ETF (VOX)

  • Performance over 1-Year: 49.0%
  • Expense Ratio: 0.10%
  • Annual Dividend Yield: 0.68%
  • 3-Month Average Daily Volume: 165,002
  • Assets Under Management: $3.7 billion
  • Inception Date: Sep. 23, 2004
  • Issuer: Vanguard

VOX tracks the MSCI U.S. IMI Communication Services 25/50 Index, which consists of U.S. companies of various market caps within the communication services sector. The fund offers a low-cost way to obtain broad exposure to communication services equities. Nearly half of the ETF's portfolio is allocated to the interactive media and services segment of the communication services sector. The fund is heavily weighted towards a handful of mega-cap companies, making it less diversified than some of its peers. Its top three holdings include class A shares of 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).

Fidelity MSCI Communication Services Index ETF (FCOM)

  • Performance over 1-Year: 48.6%
  • Expense Ratio: 0.08%
  • Annual Dividend Yield: 0.59%
  • 3-Month Average Daily Volume: 91,271
  • Assets Under Management: $733.5 million
  • Inception Date: Oct. 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 communication services stocks and follows a blended strategy of investing in both growth and value stocks. Its top three holdings include Facebook class A shares, Alphabet class A shares, and Alphabet class C shares.

SPDR S&P Telecom ETF (XTL)

  • Performance over 1-Year: 44.6%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 0.83%
  • 3-Month Average Daily Volume: 56,384
  • Assets Under Management: $87.0 million
  • Inception Date: Jan. 26, 2011
  • Issuer: State Street

XTL tracks the S&P Telecom Select Industry Index, which represents the telecommunications sub-industry portion of the S&P Total Stock Market Index. The ETF provides exposure to the telecommunications sector, including sub-industries such as alternative carriers, communications equipment, integrated telecommunication services, and wireless telecommunication services. More than half of its holdings belong to the communications equipment industry. The fund follows a blended strategy of investing in a mix of value and growth stocks. Its top three holdings include Cogent Communications Holdings Inc. (CCOI), an internet service provider; Arista Networks Inc. (ANET), a maker of network switches and related producs; and Motorola Solutions Inc. (MSI), a data communications and telecommunications equipment provider.

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