Issuers’ efforts to bring up leveraged ETFs on the newly-minted communication services sector have been visible of late. ProShares launched four leveraged/ inverse ETFs tied to the communications services sector of the S&P 500.
These funds are ProShares UltraShort Communication Services Select Sector YCOM, ProShares UltraPro Short Communication Services Select Sector SCOM, ProShares Ultra Communication Services Select Sector XCOM and ProShares UltraPro Communication Services Select Sector UCOM.
Direxion also rolled out Direxion Daily Communication Services Index Bull 3X Shares TAWK and Direxion Daily Communication Services Index Bear 3X Shares MUTE.
Inside the Funds
YCOM looks to offer inverse exposure (-2x) of the return of the S&P Communication Services Select Sector Index while SCOM gives 3x inverse exposure to the index. XCOM gives two times (2x) the return of the S&P Communication Services Select Sector Index while UCOM is designed to offer three times exposure. These products charge 95 bps in fees. As the name suggests, Direxion’s fund TAWK offers 300% of the daily performance of the index, while MUTE does the opposite.
How Does it Fit in a Portfolio?
These products could be interesting choices for those seeking a targeted exposure to the U.S. communication sector. The new sector is the broadened version of the old telecommunication sector (read: Big Tech Reshuffle & A New FANG ETF).
It has lot of growth potential as some of the hot and soaring high-growth tech and media stocks have been reshuffled to this sector, making it the biggest change in Wall Street's broad sectors since 1999. The refurbished sector brings growth stocks in the territory compared with pure value picks in the old grouping.
From the previous telecommunication sector, the fund has maintained the positions in AT&T (T - Free Report) and Verizon (VZ - Free Report) , from the tech sector it has Alphabet (GOOGL - Free Report) and Facebook (FB - Free Report) and from media and entertainment, it has biggies like Comcast (CMCSA - Free Report) and Netflix (NFLX - Free Report) . Interactive Media & Services in fact govern the fund with about 44.53%.
Notably, the index is heavy on Facebook (16.92%), Alphabet Class C (11.80%) and Alphabet Inc. Class A (11.56%). Further, it has a forward price-to-earnings ratio of 16.94x (as of Dec 31, 2018), almost in line with the 16.29 times P/E ratio of SPDR S&P 500 ETF (SPY - Free Report) .
Investors will look for momentum in the new communication services sector and may find bullish leveraged funds useful. Then again, tech biggies are having tough times of late. In fact, FB is down 17.5% past year (as of Jan 17, 2018). This may lead some investors to the bearish funds as well.
Leveraged funds should face no trouble in amassing assets as these two are apparently the first ones to hit the market. The first regular fund, Communication Services Select Sector SPDRETF (XLC - Free Report) , made its debut in mid-June and has already tasted huge success having raked in as much as $3.12 billion. So, the newly leveraged ones should also hit a home run (read: 5 Successful New ETFs of Q2).
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>