Last year, the communication services sector, a refreshed view on the old telecommunications sector, debuted as the newest S&P 500 sector. In January, the sector got its first leveraged exchange traded funds: the Direxion Daily Communication Services Index Bull 3X Shares (NYSEARCA: TAWK) and the Direxion Daily Communication Services Index Bear 3X Shares (NYSERCA: MUTE).
The bullish TAWK looks to deliver triple the daily returns of the Communication Services Select Sector Index while the bearish MUTE seeks triple the daily inverse returns of that benchmark.
The Communication Services Select Sector Index “includes domestic companies from the communication services sector, which includes the following industries: diversified telecommunications services, wireless communication services, media, entertainment, and interactive media and services,” according to Direxion.
The Communication Services sector now reflects today’s modern means of facilitating communications and delivering information, broadened to include not just telecom titans such as AT&T, but major internet and IT industry players such as Netflix and Facebook. The new composition means the sector will offer potentially more growth-oriented exposure than the old value-oriented telecommunication services sector, as well as become more cyclical than defensive.
Fast Start for TAWK ETF
TAWK is off to a fine start in less than two months on the market.
“Much of the media that Americans take as ubiquitous elements of the culture, as well as their channels of delivery, all spring from only a few media conglomerates, most of which makeup the ETF’s top holdings,” said Direxion in a recent note. “In less than a month of active trading, TAWK is already up significantly on the back of stellar earnings beats from most of its largest constituents.”
The bullish talk is also positioned to benefit from the 5G roll-out that is taking the telecommunications industry by storm.
“AT&T and Verizon both have a long history of mergers in an attempt to expand their customer reach, both with varying degrees of success,” according to Direxion. “But where in prior years the main focus may have been on acquiring content (see: Yahoo, Time Warner, and others) 5G data networks are the new battlegrounds, and everybody is burning cash to be the first to claim priority. AT&T is set to repeat its 2018 spending of more than $21 billion on expanding its new data network, while Verizon is upping its funds to about $18 billion in an attempt to make up some ground on its rival.”
AT&T (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) combine for 8.55% of TAWK’s underlying index.
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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.