Telecom ETFs

Aug 30, 2022 By Triston Martin

Exchange-traded funds for telecom are instruments that trade in liquid form that offer exposure to companies that supply infrastructure and products and services that facilitate communication. The telecommunications industry comprises mobile phone makers, internet service providers, and companies that offer audio video, audio, and other electronic services. Telecom ETFs are ETFs for the sector that offers exposure to certain companies that operate in the telecommunications industry by holding long positions.

They are instruments with liquid liquidity that permit investors to keep a selection of stocks within their portfolio. This lets buyers diversify their portfolios. Investors who want to take part in the profits from the telecom industry while minimizing the risks associated with investing in just one company ought to consider investing in an ETF for telecoms.

In the wake of the restructuring of GICS sectors in 2018, the telecom sector was transformed into the communications services sector. This new sector included large names like Meta, Alphabet, and Netflix, previously in the technology sector. In this way, most of these ETFs contain companies other than traditional telecoms.

Six telecoms ETFs traded within the United States, excluding inverse and leveraged ETFs, and in ETFs with under $50 million of the assets they manage. The telecom industry, determined using the S&P Telecom Select Industry Index, has performed poorly compared to the wider market, with a cumulative return of -16.6 percent over the last twelve months, compared to the S&P 500's overall return of -3.1 percent, at the time of publication on May 10, 2022.

First Trust Indxx NextG ETF (NXTG)

The index is equal-weighted, consisting of 80% of 5G hardware and infrastructure and 20% of telecommunications service providers. NXTG is specifically focused exclusively on U.S. large-cap communication service stocks. It follows a mixed strategy that invests in value and growth stocks. The fund's biggest exposure is integrating telecommunications services, wireless communications, and semiconductors.

SPDR S&P Telecom ETF (XTL)

XTL follows the S&P Telecom Select Industry Index, the benchmark index mentioned in the introduction. It includes companies from various sub-industries of telecommunications that are part of the larger S&P Total Market Index, which includes Alternative Carriers, Communications Equipment, and Integrated Telecommunication Services.

iShares U.S. Telecommunications ETF (IYZ)

IYZ is looking to invest with a focus on the Russell 1000 Telecommunications RIC 22.5/45 Capped Index, which is an index of U.S. telecommunication industry stocks. The fund invests exclusively in U.S. telephone and internet products, services, and technology companies. About 41% of its assets are invested in companies for communications equipment and satellite companies, with cable and satellite as well as integrated telecommunication services accounting for the majority of the remaining. IYZ is a multi-cap investment fund that invests in a mixture of growth and value stocks. It's concentrated in a limited number of names, including its top 3 holdings making up more than 45 percent of the total invested assets.

Viewing across the Oceans

The advent of telecoms has brought the world to each other, and it's therefore normal to search for investments in telecom all over the world. This iShares Global Telecom ETF does that, offering access to telecom companies worldwide. The fund's most valuable holdings are the two leading telecom companies in the U.S. At the same time, the remaining 35% of assets are distributed between companies from areas such as Japan, Europe, China, and Australia.

Other Approaches to Telecom

The other two ETFs employ minor modifications to their approach. For instance, the Fidelity ETF is the most recent of five, and its highest-performing 27 stocks appear identical to the larger counterparts. The Fidelity ETF has international exposure to Europe and Asia; however, it is limited to fewer than 10% of its total assets. Most of the fund's assets are held in the two biggest U.S. carriers. Still, the rest of its portfolio is mostly in small-cap companies that provide the fund with a healthy diversification in relation to the size of the company. The expenses are among the lowest in the market, which reflects Fidelity's efforts to establish a reputation for its low-cost ETFs.

Interestingly, the SPDR ETF surprisingly brings up the back in the telecom ETF sector; this is atypical for the most popular fund family. The ETF employs a different method which is a modified equal-weighted index. It results in cutting down on the amounts that other ETFs in this sector provide to the majors of the U.S. market. The telecom equipment providers comprise over 60 percent of the portfolio, with wireless and integrated telecom companies occupying less than 25 percent of the assets in the fund. Alternative carriers comprise the remaining. The fund's outperforming its peers demonstrates the recent record-breaking returns for equipment makers compared to traditional telecom firms.

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