Best Telecom ETFs for Q1 2022

Telecom exchange-traded funds (ETFs) are liquid instruments that have exposure to companies which provide the infrastructure, products and services that enable communication. The telecommunications sector includes mobile phones manufacturers and internet service providers along with companies that provide audio, video, and other services electronically. Telecommunications 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. The telecommunications sector ETFs hold some notable companies such as AT&T Inc. (T), Verizon Communications Inc. (VZ), and 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.

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 6 telecom ETFs that trade in the U.S. excluding inverse ETFs, leveraged ETFs and 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 to the S&P 500’s total return of 33.6%, as of Nov. 22, 2021.

We examine the three best telecom ETFs below. The best-performing telecom ETF, based on performance over the past year, is State Street’s Spider S&P 500 Telecom ETF (XTL). All numbers below are as of Nov. 22,2021.

• 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. The fund offers a low-cost way to obtain broad exposure to communication services equities.

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

• 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 and 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 services, 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.

• 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 Telecommunication Services 25/50. Of its 110 holdings, almost all are large cap companies. The fund offers exposure to internet media & services companies, entertainment, media, diversified telecommunications services, wireless telecommunications services, and real estate management and development.

Over 98% of its portfolio has U.S. stocks with a small share allotted to the U.K. and Canada. The three largest holdings represent more than 40% of invested assets and include Meta Platforms, Inc. class A shares (FB), a social media firm; Alphabet class C shares (GOOG), a major search engine firm; and Alphabet class A shares (GOOGL).

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