Telecom ETFs are a type of sector ETF that allows investors to have long exposure to companies operating in the telecom industry.
The telecommunications business has undergone significant advancements since the historical collaboration between Alexander Graham Bell and Thomas Watson in 1876.
Currently, a substantial portion of the global population has access to advanced telecommunications infrastructure, enabling widespread connectivity.
The seamless and rapid availability of telecommunications services has become indispensable for businesses, as they heavily depend on it to achieve their objectives and thrive in the modern era.
Investors seeking diversified exposure to the telecommunications sector can effectively utilize ETFs, which offer a comprehensive selection of telecom companies for investment purposes.
The ten best telecom ETFs mentioned in this article are widely favoured by investors, presenting a range of investment options for individuals interested in allocating funds towards telecom companies.
If you want to invest as an expat or high-net-worth individual, you can email me (advice@adamfayed.com) or use these contact options.
What is a Telecom ETF
Telecom ETFs are a type of investment vehicle that allows investors to have access to businesses that supply network and data communication infrastructure, as well as related products and services.
Mobile phone makers, ISPs, and the electronic delivery of media like music and movies are all part of the telecommunications industry.
ETFs are liquid products that enable investors to hold a portfolio of stocks. This paves the way for speculators to spread out their bets. ETFs are more liquid than mutual funds because they are exchanged more often during market hours.
Companies like AT&T Inc. (T), Verizon Communications Inc. (VZ), and Nippon Telegraph & Telephone Corp. (NTTYY) can all be found in ETFs that focus on the telecommunications industry.
Investors who want exposure to the telecom industry as a whole without taking on the company-specific risks can look into telecom ETFs.
Private banking clients often seek expert advice on building diversified portfolios, including the best telecom ETFs and other investment funds to achieve their financial goals.
10 Best Telecom ETFs
SPDR S&P Telecom ETF (XTL)
XTL is designed to replicate the performance of the S&P Telecom Select Industry Index, which serves as the benchmark index mentioned in the preceding introduction.
The index comprises a diverse range of telecommunications subindustries sourced from the broader S&P Total Market Index.
These subindustries encompass Alternative Carriers, Communications Equipment, Integrated Telecommunication Services, and Wireless Telecommunication Services.
The majority of XTL holdings, comprising over 59%, consist of equities related to communications equipment. This is followed by allocations to alternative carriers and integrated telecommunication services.
The primary constituents of XTL’s portfolio include Calix Inc. (CALX), a firm specializing in cloud-based software platforms and services; CommScope Holding Co. Inc. (COMM), a provider of network infrastructure; and Arista Networks Inc. (ANET), a company engaged in computer networking and cloud services.
iShares U.S. Telecommunications ETF (IYZ)
IYZ focuses on the Russell 1000 telecoms RIC 22.5/45 Capped Index, which comprises U.S. equities within the telecoms industry.
The fund has a specific focus on investing in firms operating in the United States that are involved in the production, provision, and development of telephone and internet products, services, and technology.
Approximately 40.6% of assets are allocated towards investments in companies specializing in communications equipment.
The remaining majority of assets are mostly divided between cable & satellite services and integrated telecommunication services.
The IYZ fund is a diversified portfolio that invests in a blend of value and growth stocks across various market capitalizations.
The distribution of invested assets is heavily skewed towards a limited number of entities, as evidenced by the fact that the top three holdings alone account for over 44% of the total invested assets.
The aforementioned assets include Verizon Communications Inc. (VZ), a prominent conglomerate in the telecommunications industry; Cisco Systems Inc. (CSCO), a business specializing in networking hardware, software, and telecommunications equipment; and Class A shares of Comcast Corp. (CMCSA), yet another significant conglomerate operating in the telecommunications sector.
First Trust Indxx NextG ETF (NXTG)
The initial trust The Indxx NextG ETF is designed to replicate the performance of the Indxx 5G & NextG Thematic Index.
This ETF primarily invests in prominent firms with substantial market capitalization that are actively involved in the advancement or support of 5G technology.
The index consists of assets that are equally weighted, with 80% allocated to 5G hardware and infrastructure, and the remaining 20% allocated to telecoms service providers.
NXTG primarily concentrates on communication services businesses of significant market capitalization in the United States.
The investment approach adopted by NXTG is a combination of growth and value stocks. The primary areas of investment for the fund include semiconductors, integrated telecommunication services, and communications equipment.
The primary holdings of NXTG consist of Arista Networks, as previously mentioned, Keysight Technologies Inc. (KEYS), a renowned manufacturer of electronic test and measurement equipment and software, and Apple Inc. (AAPL), a prominent supplier of hardware devices and services, encompassing streaming entertainment and news.
Communication Services Select Sector SPDR (XLC)
The aforementioned telecommunications ETF represents a pioneering endeavour since it is the initial investment vehicle exclusively focused on the communication services industry.
The Communication Services Select Sector SPDR (NYSEARCA:XLC) made its debut in June, preceding the official establishment of the sector.
XLC possesses over $3 billion in assets under management, establishing itself as one of the most prosperous ETFs introduced to the market in 2018.
The XLC ETF comprises a total of 26 stocks; nevertheless, it is important to note that this particular telecom ETF exhibits a top-heavy characteristic.
This is mostly because of the significant presence of Facebook and both share classes of Alphabet, which collectively account for more than 40% of the fund’s overall weight.
This emerging sector encompasses rapidly expanding media and entertainment enterprises from the Discretionary and Tech sectors, with the Telecom industry, predominantly led by Facebook and Alphabet.
Nevertheless, there has been a significant decrease in the overall perspective in recent months, leading to a revision of the long-term earnings per share (EPS) growth projection from 12.5% to 10.6%, accompanied by a decline in analyst confidence.
Nevertheless, the recent decrease in prices has resulted in more appealing valuations.
Pacer Benchmark Data & Infrastructure Real Estate ETF (SRVR)
The Pacer Benchmark Data & Infrastructure Real Estate ETF (NYSEARCA:SRVR) deviates from the conventional telecom ETFs, although it presents a viable investment opportunity in light of a significant industry trend: the implementation of 5G technology.
One illustrative instance involves the deployment of 5G technology by AT&T in twelve cities across the United States during the current week.
The SRVR platform, which was introduced in May, conducts a comprehensive evaluation of real estate investment trusts (REITs) based on criteria such as property type, income kind, and tenant type.
The constituents of this telecommunications ETF mostly comprise real estate investment trusts (REITs) that derive a significant portion of their earnings from data and infrastructure assets. Infrastructure and data real estate investment trusts (REITs) collectively account for more than 61% of the weight of SRVR.
According to data provided by the issuer, SRVR traded at a valuation of 21.62 times its funds from operations (FFO), which is a commonly used valuation indicator for real estate investment trusts (REITs). Additionally, it had a dividend yield of 3.4% at the end of the third quarter.
Vanguard Communication Services ETF (VOX)
Instead of introducing a new ETF specifically for the communication services sector, Vanguard made the decision to modify the existing Vanguard Communication Services ETF (NYSEARCA:VOX), which previously functioned as a conventional telecommunications ETF.
The VOX index comprises stocks of firms engaged in the provision of telephone, data transmission, cellular, and wireless communication services, as well as those involved in delivering relevant content and information across several media platforms.
This telecommunications ETF encompasses a portfolio of 110 firms. However, similar to the previously stated XLC, it exhibits a top-heavy composition.
The collective weight of the top 10 holdings in this Vanguard fund accounts for about 70% of its overall composition. The aforementioned stocks comprise Facebook, Alphabet, Verizon, and Netflix (NASDAQ:NFLX).
iShares Global Comm Services ETF (IXP)
The iShares Global Communication Services ETF (NYSEARCA:IXP) can be regarded as the international equivalent of the domestic IYZ.
The IXP, which has a history of slightly more than 17 years, adheres to the S&P Global 1200 Communication Services Sector Index and encompasses a portfolio of 66 individual stocks.
This telecom ETF exhibits a greater degree of correspondence with the communication services sector, as indicated by its nomenclature.
The combined market share of Facebook and the two Alphabet companies accounts for nearly 30% of the total holdings in IXP.
This telecommunications ETF comprises a total of nine nations, with the majority of its allocation, namely two-thirds, being dedicated to equities from the United States.
The income profile of IXP is enhanced by its global exposure, as seen by a trailing 12-month dividend yield of 4.3%.
Global X MSCI China Communication Services ETF (CHIC)
Global X recently announced a significant increase to its range of China sector ETFs, which includes the Global X MSCI China Communication Services ETF (NASDAQ: CHIC).
The newly introduced telecommunications ETF is designed to replicate the performance of the MSCI China Communication Services 10/50 Index.
Similar to domestic telecom ETFs, CHIC combines traditional telecom stocks with rapidly expanding internet and technology companies.
One additional advantage of the China High-tech Industry Corporation (CHIC) is the historically observed relatively low correlations between Chinese industries and their U.S. counterparts.
This observation implies that various sectors exhibit distinct responses to risks, such as geopolitical tensions with the United States, as well as diverse factors that drive returns, such as the expansion of domestic consumption.
Moreover, there exists a low connection between Chinese sectors and their U.S. counterparts, indicating that they are not influenced by the same risks and returns.
Fidelity MSCI Communication Services ETF (FCOM)
Fidelity provides sector ETFs for a comparatively lower cost, with one such offering being the Fidelity MSCI Communication Services ETF (NYSEARCA:FCOM), which falls under the telecom sector.
The FCOM fund, with assets under management amounting to around $183 million, focuses on tracking the performance of the MSCI USA IMI Communication Services 25/50 Index.
Similar to its previously stated counterparts, this telecommunications ETF follows a capital-weighted methodology, resulting in a relatively higher concentration of holdings at the top.
The combined holdings of Facebook, Alphabet’s two share classes, and Verizon account for around 46% of FCOM’s portfolio.
The majority of the holdings within this telecommunications ETF are categorized as large-cap value companies.
Fidelity consumers have the opportunity to achieve supplementary cost reductions by utilizing FCOM, as the telecommunications ETF is accessible on Fidelity’s commission-free ETF platform.
iShares U.S. Telecommunications ETF (IYZ)
Similar to other telecom ETFs discussed in this context, the iShares U.S. Telecommunications ETF (BATS:IYZ) once adhered to a more conventional strategy but has since been modified to align with the evolving communication services sector.
The IYZ fund is designed to replicate the performance of the Dow Jones U.S. Select Telecommunications Index, which consists of 44 individual equities.
The composition of this telecommunications ETF sets it apart from competitors like VOX and FCOM, as it maintains a significant allocation of over 32% towards Verizon and AT&T.
However, it should be noted that a considerable proportion of IYZ’s portfolio consists of technology equities, such as Cisco Systems (NASDAQ:CSCO).
Cisco represents the third-largest holding inside this telecommunications ETF, accounting for a weight of over 15%.
IYZ has a trailing 12-month dividend yield of 2.7 percent and a three-year standard deviation of 13.1 percent.
Final Thoughts
It can be helpful to invest in telecom ETFs.
To begin, it instantly spreads buyers’ money across a number of different telecommunications companies, which lowers the risk that comes with buying individual stocks.
There is also a lot of room for growth in the telecommunications industry since technology is always getting better and people are connecting to the internet more and more.
People who invest in telecom ETFs can also gain from the money that telecommunication companies might make.
Many telecom companies offer good dividend yields, which makes telecom ETFs a good choice for investors who want to make money.
You may also want to check out the best defense ETFs.
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