Best Telecom ETFs for Q1 2022

XTL, NXTG, and FCOM are the best telecom ETFs for Q1 2022

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.

Key Takeaways

  • The telecom sector matched the broader market over the past year.
  • The telecom exchange-traded funds (ETFs) with the best one-year trailing total returns are XTL, NXTG, and FCOM.
  • The top holdings of these ETFs are Calix Inc., Advanced Micro Devices Inc., and Meta Platforms 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 matched the broader market with a total return of 33.2% over the past 12 months compared with the S&P 500’s total return of 33.6%, as of Nov. 22, 2021.

The best-performing telecom ETF, based on performance over the past year, is State Street’s SPDR S&P 500 Telecom ETF (XTL).

We examine the three best telecom ETFs below. All numbers below are as of Nov. 22, 2021.

SPDR S&P Telecom ETF (XTL)

  • Performance Over One-Year: 32.3%
  • Expense Ratio: 0.35%
  • Annual Dividend Yield: 1.28%
  • Three-Month Average Daily Volume: 5,192
  • Assets Under Management: $81.2 million
  • Inception Date: Jan. 26, 2011
  • Issuer: State Street

XTL tracks the S&P Telecom Select Industry Index and consists of predominantly U.S. telecommunications companies in alternative carriers, communications equipment, integrated telecommunications services, and wireless telecommunications services.

XTL offers a low-cost way to obtain broad exposure to communication services equities. The fund’s multi-cap structure allows exposure to different classes.

XTL’s top holdings include Calix Inc. (CALX), a cloud software provider; Arista Networks Inc. (ANET), a computer networking firm; and F5 Inc. (FFIV), an application services firm. Compared to peer ETFs, XTL is more balanced with the highest number of total holdings, while the percentage of assets in the top 10 holdings is 34.8%.

First Trust Indxx NextG ETF (NXTG)

  • Performance Over One-Year: 27.6%
  • Expense Ratio: 0.70%
  • Annual Dividend Yield: 0.82%
  • Three-Month Average Daily Volume: 48,147
  • Assets Under Management: $1.1 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.

The fund’s greatest exposure is to semiconductor, integrated telecommunication, and wireless telecommunication services. Its top holdings include Advanced Micro Devices Inc. (AMD), NVIDIA Corp. (NVDA), and Xilinx Inc. (XLNX), all of which are semiconductor manufacturers.

NXTG is focused on U.S. large-cap communication services stocks and follows a blended strategy of investing in both growth and value stocks.

Fidelity MSCI Communication Services Index ETF (FCOM)

  • Performance Over One-Year: 25.0%
  • Expense Ratio: 0.08%
  • Annual Dividend Yield: 0.83%
  • Three-Month Average Daily Volume: 82,562
  • Assets Under Management: $930.8 million
  • Inception Date: Oct. 21, 2013
  • Issuer: Fidelity

FCOM tracks the MSCI USA IMI Communication Services 25/50 Index. Of its 110 holdings, almost all are large-cap companies.

FCOM offers exposure to internet media and services companies, entertainment, media, diversified telecommunications services, wireless telecommunications services, and real estate management and development. More than 98% of its portfolio has U.S. stocks, with a small share allotted to the United Kingdom and Canada.

FCOM’s three largest holdings—Class A shares of Meta Platforms Inc. (formerly Facebook) (FB), a social media firm; Class C shares of Alphabet Inc. (parent company of Google) (GOOG), a major search engine firm; and Class A shares of Alphabet (GOOGL)—represent more than 40% of invested assets.

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