Briefing.com Summary:
*The communication services sector offers AI growth at a reasonable valuation multiple.
*XLC has superior liquidity; VOX provides broader sector diversification.
*Both ETFs reduce single-stock risk while retaining upside exposure.
The S&P 500 communication services sector has some enviable characteristics that should support its standing in this market as a primary attraction for active investors. Several factors are working in the sector's favor:
The sector is coming off a command performance in the second quarter, in which it rose 18.2%, paced by gains in Netflix (+43.6%), Meta Platforms (+28.1%), and Walt Disney (+25.6%). Alphabet did well (+13.5%), outperforming the market but still trailing its sector peers.
Some profit-taking from a short-term overbought position could pose a challenge in the near term, yet pullbacks are apt to be greeted as a buying opportunity for the reasons mentioned above. The spoiler for that approach would be fundamental growth disappointments from Alphabet and Meta Platforms, the heavyweights of the space.
Individual stock selection can come with high risk but also high reward. ETFs help mitigate the volatility of single-stock selection through the ownership of multiple securities. Today, we are highlighting two sector ETFs that provide active investors with a gateway to the communication services sector.
A Double Dose
The first selection is the largest ETF in the space. That would be the Communication Services Select Sector SPDR Fund (XLC), which tracks the S&P 500 Communication Services Select Sector.
The second selection is the Vanguard Communication Services ETF (VOX), which tracks the MSCI US IMI / Communication Services 25/50. Its strong suits include:
Briefing.com Analyst Insight
Both ETFs have concentration risk at the top of their funds, making the performance of Alphabet and Meta Platforms key to returns. For active investors with a growth orientation, though, these ETFs fit that bill because the largest holdings are AI leaders.
The edge XLC has over VOX is its size and liquidity, yet VOX is the more diversified fund, investing in sector stocks that fall outside the S&P 500 Communications Services Sector. If one wants to remain concentrated in S&P 500 holdings, then XLC is the clear choice.
In any case, both XLC and VOX are appealing options in the ETF space if looking for exposure to the communication services sector without taking on individual stock risk.