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Best Telecom ETFs for Q4 2022

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Telecom exchange-traded funds (ETFs) are an investment security that provide exposure to companies that sell infrastructure, products, support and services for communications. The telecommunications sector includes mobile 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 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.

Telecommunications sector ETFs hold notable companies such as AT&T Inc. (T), Verizon Communications Inc. (VZ), and Nippon Telegraph and 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.

Key Takeaways

  • The telecom sector underperformed the broader market over the past year.
  • The telecom exchange-traded funds (ETFs) with the best one-year trailing total returns are XTL, NXTG, and IYZ.
  • The top holdings of these ETFs are Calix Inc., Arista Networks Inc., and Verizon Communications Inc., respectively.

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 Platforms Inc. (META), Alphabet Inc. (GOOGL), and Netflix Inc. (NFLX), which had previously sat in the tech sector. As such, many of these ETFs will hold companies besides traditional telecoms.

There are six telecom ETFs that trade in the United States, excluding inverse and leveraged ETFs as well as 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 underperformed the broader market with a total return of -5.7% over the past 12 months compared with the S&P 500’s total return of -2.5%, as of Aug. 17, 2022.

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

  • Performance Over 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
  • Inception Date: Jan. 26, 2011
  • Issuer: State Street

XTL tracks the S&P Telecom Select Industry Index, the benchmark index referenced in the introduction above. The index includes companies from a variety of telecommunications subindustries from within the broader S&P Total Market Index, including Alternative Carriers, Communications Equipment, Integrated Telecommunication Services, and Wireless Telecommunication Services. Communications equipment stocks make up more than 59% of XTL holdings, followed by allocations to alternative carriers and integrated telecommunication services.

The top holdings of XTL include Calix Inc. (CALX), a cloud and software platforms and services company; CommScope Holding Co. Inc. (COMM), a network infrastructure provider; and Arista Networks Inc. (ANET), a computer networking and cloud services company.

  • Performance Over 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
  • Inception Date: Feb. 17, 2011
  • Issuer: First Trust

The First Trust Indxx NextG ETF tracks the Indxx 5G & 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. NXTG is focused on U.S. large-cap communication services stocks and follows a blended strategy of investing in both growth and value stocks. The fund’s greatest exposure is to semiconductors, integrated telecommunication services, and communications equipment.

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

  • Performance Over 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
  • Inception Date: May 22, 2000
  • Issuer: BlackRock Financial Management

IYZ targets the Russell 1000 Telecommunications RIC 22.5/45 Capped Index, an index of U.S. equities in the telecommunications sector. The fund specifically invests in U.S. telephone and internet products, services, and technologies companies. About 40.6% of assets are invested in communications equipment companies, with cable & satellite and integrated telecommunication services representing the bulk of the remainder.

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

The comments, opinions, and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or adopt any investment strategy. While we believe the information provided herein is reliable, we do not warrant its accuracy or completeness. The views 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 analyses contained within our content are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment, or strategy.

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