The Telecom sector ranks ninth out of the ten sectors as detailed in our 1Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Telecom sector ranked ninth as well. It gets our Dangerous rating, which is based on an aggregation of ratings of six ETFs and nine mutual funds in the Telecom sector as of January 19, 2017. See a recap of our 4Q16 Sector Ratings here.
Figure 1 ranks from best to worst all six Telecom Services ETFs and Figure 2 ranks from best to worst the eight Telecom Services mutual funds that meet our liquidity standards. Not all Telecom sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 21 to 54). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Telecom sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
Here is our ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings. We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.
Figure 1: ETFs with the Best & Worst Ratings – Top 5
* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5
* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.
Sources: New Constructs, LLC and company filings
PFS Wireless Fund (WIREX) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
iShares Global Telecom ETF (IXP) is the top-rated Telecom ETF and Vanguard Telecommunication Services Index Fund (VTCAX) is the top-rated Telecom mutual fund. IXP earns our Attractive rating and VTCAX earns our Neutral rating.
iShares US Telecommunications ETF (IYZ) is the worst rated Telecom ETF and Fidelity Advisor Telecommunications Fund (FTUTX) is the worst rated Telecom mutual fund. Both earn a Very Dangerous rating.
49 stocks of the 3000+ we cover are classified as Telecom stocks, but due to style drift, Telecom ETFs and mutual funds hold 54 stocks.
The Danger Within
Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.
PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND
Figures 3 and 4 show the rating landscape of all Telecom ETFs and mutual funds.
Figure 3: Separating the Best ETFs From the Worst ETFs
Sources: New Constructs, LLC and company filings
Figure 4: Separating the Best Mutual Funds From the Worst Mutual Funds
Sources: New Constructs, LLC and company filings
This article originally published here on January 23, 2017.
Disclosure: David Trainer, Kyle Guske and Kyle Martone receive no compensation to write about any specific stock, sector or theme.