Welcome to ETF Of The Week, a designation given to the most newsworthy or notable fund of the past seven days.
Times, they are a-changing—at least, ownership of Time Warner is. On Tuesday, a federal judge approved AT&T's acquisition of Time Warner, an $85 billion deal that reveals the extent to which the media landscape has shifted over the past decade.
The deal, expected to close next week, will give AT&T control over Time Warner's moneymaker brands, including HBO, Turner Broadcasting and Warner Bros. Studios.
The Department of Justice had sued to stop the acquisition, citing antitrust law and the potential for the newly combined company to raise prices for consumers.
In the lawsuit, however, AT&T argued that it needed to acquire Time Warner to keep pace against new media tech giants like Netflix and Amazon, who can create their own content and distribute it directly to consumers. By pairing Time Warner's content with AT&T's vast cellphone and satellite distribution networks, lawyers argued, the new company would be able to hold its own in a landscape of streaming content and a la carte offerings.
The federal ruling is already being viewed as encouragement to other telecom companies thirsting after their own acquisitions. Comcast, for example, put in a $65 billion bid to acquire 21st Century Fox on Wednesday. Other big mergers are sure to follow.
AT&T, Time Warner and Comcast are all in the portfolio of the Vanguard Telecommunication Services ETF (VOX), by far the largest telecom ETF on the market, with $945 million in assets under management. In fact, at a 19.9% weight, AT&T is the second-largest holding in the 60-stock fund.
Source: StockCharts.com. Data as of June 14, 2018.
ETF In Flux
But the AT&T deal isn't the only reason we picked VOX as our ETF of the Week. In fact, the fund is at an interesting point in its life cycle right now, because the VOX of today may not look much like the VOX of June 2019.
Last year, S&P and MSCI announced big changes to their telecommunications sector that would impact VOX, as well as many other ETFs; and in May, the fund switched to a transitionary index designed to bridge the gap between the old and new GICS definitions. The full transition should be complete in September (read: "Vanguard Outlines Sector Transition Plan").
Among other modifications, the GICS changes reclassify most of the so-called FAANG stocks (Facebook, Amazon, Apple, Netflix and Google) into a new "communications services" sector—which VOX will soon track.
The new sector will still include telecom companies like AT&T, but it will also include internet media companies, mobile gaming app makers, online streaming services, search engines, social media platforms and more.
As such, VOX stands poised to benefit not just from AT&T's buyout of Time Warner, but from the new media competition making such a deal necessary in the first place. It's truly a one-stop shop.
Cheap Telecom Exposure
With its expense ratio of 0.10%, VOX is extremely cheap to own. It also has strong liquidity, like most Vanguard ETFs, with healthy trading volume ($6.5 million daily) and spreads in the single digits.
On the news of the acquisition's approval, VOX rose 4%, though year-to-date, the fund remains down 6.33%.
Contact Lara Crigger at [email protected].