U.S. Investing

Telecom Fund Uses Market-Cap-Weighted Index

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).

Chart courtesy of StockCharts.com

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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Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.