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 various communication services, such as phone, Internet, and cable. They enable the sending and receiving of data and information in various formats, such as audio, video, or text. Investors looking 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 ETFs with the best 1-year trailing total return are NXTG, VOX, and IXP.
- The top holding of the first of these ETFs is Xiaomi, while the top holding of funds two and three is Facebook.
The telecom ETF universe is comprised of about 5 distinct ETFs, 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 18.1% over the past 12 months compared to the S&P 500's total return of 14.3%, as of September 10, 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 the performance of that sector.
The best-performing telecom ETF for Q4 2020, based on performance over the past year, is the First Trust Indxx NextG ETF (NXTG). We examine the top 3 best telecom ETFs below. All numbers below are as of September 11, 2020.
- Performance over 1-Year: 16.6%
- Expense Ratio: 0.70%
- Annual Dividend Yield: 1.17%
- 3-Month Average Daily Volume: 60,462
- Assets Under Management: $569.6 million
- Inception Date: February 17, 2011
- Issuer: First Trust
NXTG tracks the Indxx 5G & NextG Thematic Index, an index designed to measure the performance of companies focused on the research and development of 5G cellular technology and next generation technologies. After filtering for securities that fit the themes of its index, NXTG selects up to 100 securities with the largest market capitalizations. It allocates 80% of its holdings to companies focused on 5G infrastructure and hardware, and the remaining 20% to telecommunications service providers. The fund's top three holdings include Xiaomi Corp. (HKG:1810), a China-based manufacturer of communication equipment and parts; Advanced Micro Devices Inc. (AMD), a semiconductor company; and Taiwan Semiconductor Manufacturing Co. Ltd. (TSM), a Taiwan-based multinational semiconductor company.
- Performance over 1-Year: 15.7%
- Expense Ratio: 0.10%
- Annual Dividend Yield: 0.91%
- 3-Month Average Daily Volume: 190,206
- Assets Under Management: $2.8 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: 14.9%
- Expense Ratio: 0.46%
- Annual Dividend Yield: 1.11%
- 3-Month Average Daily Volume: 24,405
- Assets Under Management: $303.0 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. Nearly 70% of the fund's holdings are based in the U.S., while telecom equities based in China and Japan each receive nearly 10% allocations. IXP follows a blended strategy, investing in a mix of both value and growth stocks. The fund's top three holdings include Facebook, Alphabet class A shares, and Alphabet class C shares.