“Investors who have seen the market’s recent pullback (and, particularly, its recent punishment of telecom firms) but want to avoid single-stock risk, should consider a telecom ETF,” Goldsborough said. “Currently, three ETFs focus solely on U.S. telecom firms. All three trade significantly below Morningstar’s fair value estimates for the funds.”
The ETFs include:
- iShares Dow Jones US Telecom (NYSEArca: IYZ). IYZ is the largest and most liquid of the three. The fund holds fixed-line, wireless and tower companies. The ETF is also heavily weighted in its top 10 holdings, which make up 71% of assets, with AT&T at 19% and Verizon at 14%. IYZ has an expense ratio of 0.47%.
- Vanguard Telecom Services ETF (NYSEArca: VOX). VOX holds 70% of assets in its top 10 holdings, with AT&T and Verizon each at 23%. The ETF has an expense ratio of 0.24%. The fund has also shown a 98% correlation with IYZ over the last three years.
- Focus Morningstar Communications Services ETF (NYSEArca: FCQ). FCQ is the smallest and most thinly traded of the three. Still, the fund boasts a cheap 0.19% expense ratio. This fund, unlike the other two, includes cable company holdings. Around 74% of the fund’s total assets make up the top 10 holdings. The fund also has a higher weighting to high-quality companies, compared to IYZ and VOX.
iShares Dow Jones US Telecom
For more information on the telecom sector, visit our telecommunications category.
Max Chen contributed to this article.