Facebook and Alphabet are among the titans of Silicon Valley that are in political crosshairs again, but that doesn’t damage the long-term thesis for the communication services sector and the Communication Services Select Sector SPDR Fund (XLC).
XLC seeks to correspond generally to the price and yield performance of publicly traded equity securities of companies in the Communication Services Select Sector Index. The index includes companies that have been identified as Communication Services companies by the GICS®, including securities of companies from the following industries: diversified telecommunication services; wireless telecommunication services; media; entertainment; and interactive media & services.
“Political headwinds are nothing new for the aforementioned XLC components and those scenarios usually weigh on the stocks briefly before giving way to more upside. As it is, Facebook is up almost 28% this year, indicating Capitol Hill conjecture isn’t a long-term threat to the name,” reports InvestorPlace.
Examining XLC and the Communications Sector
XLC is the first and largest ETF dedicated to the communication services sector. It’s a growth-oriented, a trait that’s relevant in today’s market.
Investors can still enhance their portfolios as the bull market extends with growth-oriented stocks that continue to perform despite the recent bouts of volatility. The growth style has outperformed the market in spite of being prone to sell-offs with strong corporate earnings.
Growth stocks are often associated with high-quality, prosperous companies whose earnings are expected to continue increasing at an above-average rate relative to the market. Growth stocks generally have high price-to-earnings (P/E) ratios and high price-to-book ratios. Still, data suggest the growth/value premium isn’t overly elevated relative to historical norms.
There’s another positive for the XLC thesis: Institutional investors are rotating into the communication services sector.
“Data confirm professional investors agree as that crowd recently reduced exposure to other sectors, but boosted allocations to communication services equities,” according to InvestorPlace. “Another potential political plus for XLC is the likelihood of former Vice President Joe Biden winning presidency in November. His running mate, Kamala Harris (D-CA), is from Northern California and plenty of Silicon Valley firms, including some XLC components, backed her attorney general and Senate campaigns. That stokes thought that a Biden Administration won’t look to take a heavy-handed approach to dealing with Facebook and Google.”
XLC is higher by 28% over the past six months and resides just 9.40% below its all-time high.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.