ETFs That Sound Alike Are Often Different

January 31, 2017

Tech With Your Telecom?

Looking for telecom exposure in an ETF? Better decide whether you want it mixed with technology, utilities or straight up.

The Vanguard Telecommunications Services (VOX) has hefty 20%-plus weightings in AT&T and Verizon and more moderate positions in CenturyLink, Level 3 Communications and T-Mobile USA, but no stocks in other sectors. In contrast, the SPDR S&P Telecom ETF (XTL) has approximately 60% in communications equipment companies such as Arista Networks and Palo Alta Networks, as well as equally weighted stakes in the above-mentioned telecom service providers.

Telecom Exposure in Sector ETFs

XTL outperformed VOX by more than 200 basis points in 2016, but underperformed by 400 basis points in 2015, a reminder that when the constituents are different, the records will also be.

Meanwhile, despite not including telecom in its name, the PowerShares S&P SmallCap Utilities Portfolio (PSCU) has nearly 40% in telecom companies such as Cincinnati Bell and Cogent Communications; and utilities ALLETE and South Jersey Industries.

CFRA highlighted these examples during its participation during “ETFs 101: Understanding & Evaluating ETFs” at Inside ETFs last week. To learn more about our ETF approach and see the methodology document, contact [email protected].

At the time of writing, neither the author nor his firm held any of the securities mentioned. Todd Rosenbluth is director of ETF and mutual fund research at CFRA, an independent research firm that acquired S&P Global Market Intelligence's equity and fund business in October 2016. He can be reached at [email protected]. Follow him at @ToddCFRA

 

 

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