Home News The Best Telecom ETFs for Q4 2022

The Best Telecom ETFs for Q4 2022

by SuperiorInvest

Telecom exchange traded funds (ETFs) are investment securities that provide exposure to companies that sell communications infrastructure, products, support and services. The telecommunications sector it includes cell 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 companies in the telecommunications industry through long positions.

ETFs are liquid instruments that allow investors to hold a basket of stocks portfolios. This allows investors to diversify their holdings. ETFs trade daily during market hours, making them more liquid than mutual funds.

ETFs in the telecommunications sector own major companies such as AT&T Inc. (T), Verizon Communications Inc. (VZ) and Nippon Telegraph and Telephone Corp. (NTTYY). Investors looking to share in the gains across the telecom sector while cutting back idiosyncratic risks investing in one company should consider investing in a telecom ETF.

Key things

  • The telecommunications sector has lagged behind the broader market over the past year.
  • Telecom exchange-traded funds (ETFs) with the best annual total returns are XTL, NXTG and IYZ.
  • The top holders of these ETFs are Calix Inc., Arista Networks Inc. and Verizon Communications Inc.

With reorganization Global Industrial Classification Standard (GICS) sectors in 2018, the telecommunications sector changed to the communication services sector. The new sector contained many big names such as Meta Platforms Inc. (META), Alphabet Inc. (GOOGLE) and Netflix Inc. (NFLX), which previously worked in the technology sector. As such, many of these ETFs will hold companies other than traditional telecoms.

There are six telecommunications ETFs that trade in the United States, excluding inverse and leverage effect ETFs as well as ETFs with less than $50 million assets under management (AUM). The telecommunications sector, as measured by the S&P Telecom Select Industry Index, has underperformed the broader market over the past 12 months, with a total return of -5.7% compared to the S&P 500 total return of -2.5% as of August 17, 2022.

The best-performing telecom ETF based on past year performance is the SPDR S&P Telecom ETF (XTL). Below, we examine three of the best telecom ETFs. All numbers below are as of August 18, 2022. In order to focus on the Funds’ investment strategy, the best holdings listed for each ETF exclude cash holdings and holdings purchased with the proceeds of securities lending, except in unusual cases such as an exceptionally large portion of cash.

  • Performance in one year: -3.7%
  • Expense ratio: 0.35%
  • Annual dividend yield: 1.28%
  • Three-month average daily volume: 4,497
  • Assets under management: $67.4 million
  • Start date: January 26, 2011
  • Issuer: State Street

XTL tracks the S&P Telecom Select Industry Index, the benchmark index mentioned in the introduction above. The index includes companies from various telecommunications subsectors within the broader S&P Total Market Index, including alternative carriers, communications equipment, integrated telecommunications services and wireless telecommunications services. Communications equipment stocks make up more than 59% of XTL’s holdings, followed by allocations to alternative carriers and integrated telecommunications services.

Among the most important XTL holdings are Calix Inc. (CALX), a cloud and software platform and services company; CommScope Holding Co. Inc. (COMM), network infrastructure provider; and Arista Networks Inc. (SEW), a company providing computer networks and cloud services.

  • Performance in one year: -8.7%
  • Expense ratio: 0.70%
  • Annual dividend yield: 0.82%
  • Three-month average daily volume: 72,119
  • Assets under management: $595.1 million
  • Start date: February 17, 2011
  • Issuer: First Trust

The First Trust Indxx NextG ETF tracks the Indxx 5G & NextG Thematic Index and invests in big hat companies that develop or participate in the development of 5G technologies. The index has equally esteemed holdings, with 80% in 5G hardware and infrastructure and 20% in telecommunications service providers. NXTG focuses on US large-cap communications services stocks and follows a mixed strategy of investing in both grow and value supplies. The fund’s biggest exposure is semiconductors, integrated telecommunications services and communication equipment.

NXTG’s major holdings include Arista Networks, described above; Keysight Technologies Inc. (KEYS), manufacturer of electronic test and measurement equipment and software; and Apple Inc. (AAPL), a major provider of hardware devices and services, including streaming entertainment and news.

  • Performance in one year: -18.2%
  • Expense ratio: 0.39%
  • Annual dividend yield: 2.84%
  • Three-month average daily volume: 848,302
  • Assets under management: $421.0 million
  • Start date: May 22, 2000
  • Issuer: BlackRock Financial Management

IYZ focuses on the Russell 1000 Telecommunications RIC 22.5/45 Capped Index, an index of US stocks in the telecommunications sector. The fund specifically invests in US telephone and Internet products, services and technology companies. About 40.6% of assets are invested in communications equipment companies, with cable and satellite and integrated telecommunications services accounting for most of the remainder.

IYZ is a multi-cap fund investing in a mix of value and growth stocks. It is highly concentrated in a small number of names, with the top three holdings accounting for more than 44% of total invested assets. These holdings are Verizon Communications Inc. (VZ), a large telecommunications conglomerate; Cisco Systems Inc. (CSCO), a network hardware, software and telecommunications equipment company; and Class A shares of Comcast Corp. (CMCSA), another large telecommunications conglomerate.

The comments, opinions and analysis expressed herein are for informational purposes only and should not be construed as individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information contained herein to be reliable, we do not guarantee its accuracy or completeness. The opinions and strategies described in our content may not be suitable for all investors. Because market and economic conditions are subject to rapid change, all comments, opinions and analysis contained in our content are provided as of the date of publication and are subject to change without notice. The material is not intended to be a complete analysis of all material facts relating to any country, region, market, industry, investment or strategy.

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