An exchange-traded fund (ETF) that invests in stocks of communication-related companies, such as media, internet, and telecommunications firms, is known as a communication industry ETF. To provide returns comparable to an underlying index is its goal. The foundational industry for creating national information and offering network and information services is the information and communication sector.
What Is a Communication Industry ETF?
An exchange-traded fund (ETF) that tracks an underlying index by investing in securities with a focus on communication is known as an industry ETF for the communication sector.
ETFs for the communication industry were formerly limited to the telecom sector, which was dominated by companies like Verizon Communications Inc. (VZ) and AT&T Inc. (T) and had one of the lowest sector weights in the S&P 500.
Then, in 2018, a modification was made to increase their reach in light of the expanding influence of media and internet firms on communication.
KEY TAKEAWAYS
An exchange-traded fund (ETF) that invests in stocks of communication-related companies, such as media, internet, and telecommunications firms, is known as a communication industry ETF.
To provide returns comparable to an underlying index is its goal.
The GICS decided to categorize some digital internet platforms as communications in 2018.
Due to these modifications, communication ETFs now have more growth-oriented attributes than they did in the past—telecoms are typically far more defensive.
Understanding Communication Industry ETFs
Like mutual funds, exchange-traded funds (ETFs) are collections of securities that follow an underlying index. They are listed on exchanges and exchanged like regular stock, although they are not like mutual funds in that regard.
A few ETFs aim to mimic the whole market. Others concentrate on the stocks and securities of a particular industry, following distinct sectors through the benchmark indexes of the Global Industry Classification Standard (GICS). Communication services are a very new industry, with only nine ETFs available to investors as of December 2023 (VettaFi, p. 2).
In the past, the majority of ETFs in this category had substantial holdings in the telecom behemoths Verizon Communications and AT&T, with the other equity holdings fluctuating greatly. Large-cap internet technology equities have contributed to an increasing proportion of these portfolios.
Communication ETFs currently have more growth-oriented features than in the past due to changes made to the GICS, a widely used methodology for classifying equities; previously, these ETFs represented the defensive characteristics of telecom companies.
History of Communication Industry ETFs
Based on the GICS, Standard & Poor's (S&P) and Morgan Stanley Capital International (MSCI), two of the biggest index providers used by ETF issuers, segment the U.S. and international equity markets into some industry sectors. The declining telecom services industry was merged into the broader communication services industry in 2018 with the expansion of the GICS.
Amidst the increasing merger of media, internet, and telecom corporations, the GICS acknowledged the changing nature of communications. The activity of mergers and acquisitions (M&A) in various sectors has made the combination of phone, internet, and cable services; also, the delivery of content is integrated with it. These developments in the industry were also fueled by social media companies' growing dominance as the top suppliers of communication services, increasingly via mobile platforms.
Microsoft Corporation, "Revisions to the Global Industry Classification Standard (GICS) Structure in 2018,"
Existing telecommunications companies, businesses chosen from the consumer discretionary sector (previously categorized under the media industry group and the internet & direct marketing retail sub-industry), and a small number of businesses from the information technology sector are now included in the renamed sector.
Example of a Communication Industry ETF
Vanguard Communication Services ETF (VOX), which has around $3.56 billion in assets under management (AUM) as of January 2024, is the largest exchange-traded fund (ETF) for the communication business, according to VettaFi. The goal of this specific vehicle is to mimic the MSCI US Investable Market Communication Services 25/50 Index's performance. When that isn't feasible because of legal restrictions, the fund approximates the main characteristics of the index using a sampling technique.
VOX had 118 equities in its portfolio as of January 2024. Comcast Corp. (CMCSA), Meta (META), and Alphabet Inc. (GOOGL and GOOG) were its three biggest holdings.
Special Considerations
Exchange-traded funds (ETFs) in the communication business often provide investors with the same advantages as conventional ETFs, such as low expense ratios, respectable liquidity, and tax efficiency. They facilitate short sales and margin purchases and are traded on the majority of the main exchanges during regular business hours.
Another major draw is diversification. Investors looking to get a wide range of exposure to either domestic or foreign communication stocks may wish to take into account ETFs aimed at the industry. Investors can lower company-specific risk by investing in communication ETFs, which provide instant access to a wide range of communication companies.
A diverse set of funds, communication exchange-traded funds (ETFs) are invested in overlapping but distinct categories of stocks and other securities. Because they are focused on a particular industry, these vehicles do not provide investors with much in the way of risk reduction or diversification.
However, because they let investors invest in a variety of businesses rather than just one or a select few, it might be argued that they check these requirements.
It's also important to note that the communication services industry has grown significantly since the previous time, offering access to a wide range of securities with quite distinct characteristics, and is always changing. Theoretically, buying in one of these vehicles allows investors to combine defensive telecoms' high dividend yields and steady cash flows with the growth potential of IT stocks.
FAANG Heavy
There is a chance that many communication industry ETF portfolios will be more strongly weighted to the large market size FAANG stocks, even if they cover a broad range of stocks. These firms are already a mainstay of most portfolios and command high valuations, so even the smallest setback can set off an aggressive sell-off.
What Is the Largest Communications ETF?
With $3.56 billion under management, the Vanguard Communications Services ETF is the largest exchange-traded fund for the communications industry.
What Are the Advantages of Investing in Communications ETFs?
Broad exposure to the communications sector, including telecommunications, internet, and other high-tech companies, is offered via communications services exchange-traded funds (ETFs). Investors are wagering on the industry's success rather than the performance of a single firm because these funds invest in a wide variety of equities.
What Is the New Name for FAANG Stocks?
Facebook, Amazon, Apple, Netflix, and Google are sometimes referred to as FAANG, a metonym for large-cap firms that rule the internet communications sector. However, as Facebook rebranded itself as Meta, the acronym lost popularity. Though it hasn't gained much support yet, the abbreviation MAMAA—short for Meta, Apple, Microsoft, Amazon, and Alphabet—has been suggested as a potential substitute.
Conclusion
Investing in a variety of communications sector companies, including internet and telecommunications providers, is represented by an exchange-traded fund (ETF) for the communications industry. An increasing number of large-cap media and internet companies are included as a result of changes in industry classifications.
0 Comments