The communication services sector is making a change accessible via exchange-traded funds such as the Communication Services Select Sector SPDR Fund (NYSE: XLC).
In 2017, index providers S&P Dow Jones and MSCI stated that it would be creating the communication services sector. This will be a new look on the telecommunications sector that includes well-established telecom companies as well as companies formerly classified as consumer discretionary and or technology names.
While communication services is not a new sector, it carries with it a new look compared to the previously overblown telecommunications sector with the addition of some well-known growth stocks from the consumer discretionary and technology sectors. That does not mean traditional telecom stocks will benefit from the sector shift.
Dow component Verizon Communications Inc. (NYSE: VZ), AT&T Inc. (NYSE: T) and CenturyLink (NYSE: CTL) are the telecom stocks in the communications services sector.
“The telecom sector has been the biggest loser among the S&P’s 11 major sectors with a 4.4-percent decline so far in 2018, driven by AT&T’s 13.3-percent drop. In comparison, many of the other companies joining the group have shown strong gains for the year with Netflix rising 91.5 percent, Twitter (TWTR.N) rising 21.7 percent and Alphabet rising 10.8 percent,” according to Reuters.
Inside the Telecom Stocks Sector, Verizon is a top 10 holding in XLC.
XLC is the first ETF sole built for the new communication services sector. The new ETF follows the Communication Services Select Sector Index and “seeks to provide precise exposure to companies from the media, retailing, and software & services industries in the U.S.,” according to State Street Global Advisors (SsgA).
“But many active investors may still ignore telecom stocks, which are typically viewed as defensive investments because of slower, though relatively predictable, growth rates and high dividends,” according to Reuters. “Instead, they may look to the faster-growing internet or media companies for exposure to the growth-oriented communications sector.”