ETF Chart of the Day: Telecom Laggards

With all of the talk involving the S&P 500 trading at fresh new all-time highs yet again, we took a quick look at not sector performance leaders but the sector laggards, year to date. Browsing through benchmark ETFs the Sector SPDRs, we see that XLY (SPDR Consumer Discretionary Select, Expense Ratio 0.16%) and XTL (SPDR S&P Telecom, Expense Ratio 0.35%) have had the hardest times year to date, with XLY eking out a 2.50% gain while XTL is up even less (+1.92%).

This under-performance relative to the S&P 500 in both of these sectors has been present for the trailing one year period is well. In the case of XTL, the fund holds fifty seven stocks in the
Telecommunications industry, and unlike some of the original SPDR sector products which are market cap weighted, this ETF which debuted in 2011 is a modified equal weighted index.

If you look at the current holdings, you will see WIN (2.41%), FTR (2.40%), EGHT (2.35%), TWTC (2.31%), and RKUS (2.31%). In other words, the weightings are pared back to equal on a periodic basis and then allowed to freely float with price fluctuations in the stocks themselves, until bringing them back to equal weight.

XTL itself is a subset of the “Total Stock Market” not just the S&P 500 Index, so it is worth noting that there is notable exposure to Mid and Small Cap stocks (more than 58% of the portfolio) in addition to its smaller Mega and Large cap exposures.

XTL is not alone in its struggles year to date in terms of performance, as Telecoms on the global front have fared even worse than those in the U.S. We look at IXP (iShares S&P Global Telecommunications Sector,
Expense Ratio 0.47%) for example as well as IST (SPDR S&P International Telecommunications Sector, Expense Ratio 0.50%) with the former being about ten times the size of the latter in terms of AUM size ($472 million versus about $40 million) and see not only underperformance to most broad benchmarks but substantial losses year to date (->6% in the case of IXP and ->10% in the case of IST).

Two other names to watch in terms of U.S. Domestic Telecoms are VOX (Vanguard Telecommunication Services, Expense Ratio 0.14%) and IYZ (iShares U.S. Telecommunications, Expense Ratio 0.46%). VOX and IYZ have actually had decent showings in terms of pulling in new assets year to date, as we see >$138 million entering IYZ and VOX adding >$127 million via creations.