July 1, 2025
Blog & Resources
By Dan Taylor
The year 2018 marked a seismic shift when Wall Street kicked social media giants like Meta and Google out of the technology sector into a brand-new category called "Communication Services." This wasn't just accounting semantics—it created an entirely new investment opportunity that active traders have been capitalizing on ever since.
The Communication Services Select Sector SPDR Fund (XLC) emerged from this reshuffling, giving traders direct access to streaming platforms, social networks, telecom companies, and digital advertising powerhouses under one ticker. XLC offers a compelling entry point into one of the market's most dynamic sectors.
XLC tracks the Communication Services Select Sector Index from the S&P 500, giving traders exposure to telecommunication, media, entertainment, and interactive media companies without building a diversified position across multiple individual stocks.
The fund provides exposure to telecommunication, media, entertainment and interactive media companies, capturing both growth potential of digital platforms and steady income of traditional utilities.
The Communication Services sector represents a fundamental shift in business classification. Companies like Meta, Alphabet, Netflix, and Twitter were reclassified out of technology into this new category in 2018, creating a sector that didn't exist just a few years ago.
XLC maintains a competitive expense ratio of 0.08% and manages approximately $24 billion in assets under management as of June 2025. For active traders, this low cost structure means more of your returns stay in your pocket rather than going to fund management fees.
The ETF typically sees average daily volume of around 5.8 million shares, providing the liquidity that active traders require for smooth entry and exit strategies. The tight bid-ask spreads and deep options market make XLC particularly attractive for traders employing more sophisticated strategies like covered calls or protective puts.
XLC currently trades with a beta of 1.04, making it slightly more volatile than the broader market, with a year-to-date return of approximately 7.13% and a trailing P/E ratio of 19.84. This volatility profile offers active traders the price movement necessary for profitable swing trading while remaining anchored to fundamental business performance.
The fund's dividend yield of about 1.02% provides some income component, though most investors choose XLC for capital appreciation rather than yield. The fund's projected 3-5 year EPS growth rate of approximately 18.3% reflects the underlying earnings power of its major holdings, making it attractive for both growth and value-oriented strategies.
Sector ETFs allow investors to express a view on a specific sector of the economy that may react beneficially to anticipated events, while also providing portfolio diversification for investors with concentrated positions elsewhere. XLC takes this concept further by offering exposure to a sector that sits at the intersection of multiple macro trends.
XLC faces several unique challenges that active traders must monitor closely.
Regulatory scrutiny represents the biggest ongoing risk. Big Tech components face increasing government oversight on antitrust, data privacy, and content moderation. When regulators target Meta or threaten to break up Alphabet, XLC's concentrated nature means headlines can move the entire fund.
Interest rate sensitivity affects holdings in opposite ways. Traditional telecom companies with high dividends suffer when rates rise, while growth-oriented holdings may benefit from lower discount rates, creating internal tension.
Market concentration risk cannot be ignored. Meta alone accounts for about one-third of fund assets, while the top three holdings represent 55%. Individual mega-cap movements can dramatically impact overall performance. This is where market leadership analysis becomes crucial for understanding sector relationships.
Secular disruption continues reshaping the landscape. Traditional media faces cord-cutting pressures while streaming markets show saturation, forcing aggressive competition on content costs.
Economic cycles matter significantly for advertising-dependent holdings like Meta and Alphabet, which see revenue decline during slowdowns as businesses cut marketing budgets.
Global regulatory environments around social media continue evolving, from European data protection laws to potential platform bans, quickly impacting the competitive landscape.
Successfully navigating XLC's unique blend of growth and volatility requires systematic strategies that capitalize on sector rotation while managing concentrated risks. The regulatory headlines, earnings volatility, and interest rate sensitivity create both challenges and opportunities for traders who know how to position correctly.
MarketGauge's former floor traders, with 25-35+ years of experience, have developed proven methodologies specifically designed to profit from sector ETF movements like XLC. Our systematic approaches eliminate emotional decision-making, replacing gut feelings with historically-tested strategies.
Whether timing sector rotations, capitalizing on earnings volatility, or implementing part-time trading strategies, our institutional-quality analysis and mentorship help identify low-risk entries with significant profit potential. Don't let the next XLC breakout catch you unprepared—discover how our floor trading heritage can transform your sector ETF approach.
