Telecom Fund Uses Market-Cap-Weighted Index

Jim Woods

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The Communication Services Select SPDR Fund (XLC) tracks a market-cap-weighted index of U.S. telecommunication and media and entertainment components of the S&P 500 index.

XLC offers exposure to the Communication Services sector, which was redefined by September 2018 changes to the Global Industry Classification Standard (GICS). The exchange-traded fund (ETF) includes all members of the former telecommunications sector, which was expanded to include internet service providers, as well as media and entertainment companies previously classified in the consumer discretionary or tech sectors.

The fund is one of the 11 Select Sector SPDR funds that draws its holdings from the S&P 500 index. Typically, trading volume in these products is high. The expense ratio places the fund in the middle of the competition.

Most of XLC’s holdings, 71.08%, are in media, communications and entertainment companies such as Facebook (NASDAQ: FB), Alphabet Inc. Class C (NASDAQ: GOOG), Alphabet Inc. Class A (NASDAQ: GOOGL), Verizon Communications Inc. (NYSE: VZ), Walt Disney Company (NYSE: DIS), Comcast Corporation Class A (NASDAQ: CMCSA), Charter Communications Inc. (NASDAQ: CHTR), AT&T Inc. (NYSE: T), Twenty-First Century Fox (NASDAQ: FOX) and Electronic Arts Inc. (NASDAQ: EA).

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The fund currently has $3.73 billion in net assets and an average spread, which is the difference between the bid and ask prices of a security, of 0.03%. It also has an expense ratio of 0.13%, so it is relatively cheap to hold in comparison to other exchange-traded funds.

To sum up, this ETF provides a practical representation of media, communications and entertainment companies of the S&P 500 Index, seeking to give investors a strategic edge. However, with the current relatively volatile state of the technology sector, it is not without risk. Investors should exercise due diligence to consider whether or not the fund is worthwhile for their portfolios.

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