The once hot Communication Services Select Sector SPDR Fund (NYSEArca: XLC), the first ETF dedicated to the communication services sector, is cooling off in February and that has some traders concerned about the state of the FANG trade.
While Amazon.com Inc. (NASDAQ: AMZN) is not a member of XLC’s lineup, Facebook Inc. (NASDAQ: FB), Google parent Alphabet Inc. (NASDAQ: GOOGL) and Netflix, Inc. (NASDAQ: NFLX), three of the four FANG stocks, are major holdings in XLC. Accounting for both classes of Alphabet shares, Facebook, Alphabet and Netflix are XLC’s top four holdings and combine for about 47% of XLC’s weight.
“The XLC communications services ETF is flat for February, underperforming the broader market’s 3 percent rally. The newest S&P 500 sector holds three-quarters of the FANG trade — Facebook, which is lower for the month, Alphabet, which is flat, and Netflix, which is higher,” reports CNBC.
Examining XLC ETF
The $4.11 billion XLC, which debuted last June, follows the Communication Services Select Sector Index and holds 26 stocks.
Todd Gordon, founder of TradingAnalysis.com, said in a CNBC interview that as the broader market encounters technical resistance, that scenario could cap XLC’s ability to move higher over the near-term.
“”We have a series of three tops right around $280 in the SPY, 2,800 in the S&P 500. I think that is going to be a source of resistance so we have resistance in the broader market,” Gordon told CNBC. “”Back to XLC, this product I think has been underperforming on the bounce back. So, with the idea that we are facing resistance in the broader market, I think it’s going to make sense to hedge.”