Telecom exchange-traded funds (ETFs) provide investors with exposure to companies that make communication possible on a global scale. The telecommunications 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 telecom exchange-traded funds (ETFs) with the best one-year trailing total returns are VOX, FCOM, and IXP.
- The top holding of each of these ETFs is class A shares of Facebook 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 offered by these companies 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 composed of just three stocks at the time: AT&T, Verizon, and CenturyLink Inc. (now Lumen Technologies Inc. [LUMN]).
Seven distinct telecom ETFs trade in the United States, 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 outperformed the broader market with a total return of 41.0% over the past 12 months compared to the S&P 500’s total return of 33.5%, as of Aug. 17, 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 three best telecom ETFs below. All numbers below are as of Aug. 17, 2021.
- Performance Over One-Year: 40.8%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 0.62%
- Three-Month Average Daily Volume: 187,612
- Assets Under Management: $4.6 billion
- Inception Date: Sept. 23, 2004
- Issuer: Vanguard
VOX tracks the MSCI US IMI Communication Services 25/50 Index, which consists of U.S. companies of various market capitalizations within the communication services sector. The fund offers a low-cost way to obtain broad exposure to communication services equities. Just over 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 toward a handful of mega-cap companies, making it less diversified than some of its peers. Its top three holdings account for more than 40% of invested assets and include class A shares of Facebook Inc. (FB), a social media and networking platform; class A shares of Alphabet Inc. (GOOGL), a multinational technology company and parent of Google; and Alphabet class C shares (GOOG).
- Performance Over One-Year: 40.8%
- Expense Ratio: 0.08%
- Annual Dividend Yield: 0.56%
- Three-Month Average Daily Volume: 103,148
- Assets Under Management: $934.3 million
- Inception Date: Oct. 21, 2013
- Issuer: Fidelity
Like VOX above, FCOM tracks the MSCI US 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. While it is quite similar to VOX, FCOM has a slightly lower expense ratio. Its top three holdings include Facebook class A shares, Alphabet class A shares, and Alphabet class C shares, all described above.
- Performance Over One-Year: 30.6%
- Expense Ratio: 0.43%
- Annual Dividend Yield: 0.83%
- Three-Month Average Daily Volume: 13,322
- Assets Under Management: $331.9 million
- Inception Date: Nov. 12, 2001
- Issuer: BlackRock Financial Management
IXP tracks the S&P Global 1200 Communication Services 4.5/22.5/45 Capped Index, an index composed of global communication services companies. Companies included in the portfolio operate in the media, entertainment, social media, search engine, video, gaming, and telecommunication services industries. U.S. companies account for just under three-quarters of the portfolio, with China and Japan receiving the next largest allocations.
Like the two funds above, IXP is heavily weighted toward a small number of holdings. The three largest holdings represent more than 40% of invested assets and include Facebook class A shares, Alphabet class A shares, and Alphabet class C shares, all described above.
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