Technology - Telecom Sector Offers Broad Exposure with First Trust Indxx NextG ETF
The Technology - Telecom segment of the equity market has been gaining traction among retail and institutional investors, making it an attractive option for those looking to diversify their portfolios. One popular choice in this space is the First Trust Indxx NextG ETF (NXTG), a passively managed exchange traded fund launched on 02/17/2011.
Passively managed ETFs have become increasingly popular due to their numerous benefits, including low costs, transparency, flexibility, and tax efficiency. These funds are particularly suitable for long-term investors who seek consistent returns without the burden of actively managing their portfolios. Sector ETFs, in general, offer an efficient way to gain exposure to a broad group of companies within specific sectors.
The Technology - Telecom sector is one of the 16 broad Zacks sectors within the Zacks Industry classification, currently ranked 8 out of 10, placing it among the top-performing sectors. The First Trust Indxx NextG ETF (NXTG) seeks to match the performance of the INDXX 5G & NEXTG THEMATIC INDEX before fees and expenses.
Index Details
The fund is sponsored by First Trust Advisors and has amassed assets over $364.44 million, making it one of the average-sized ETFs attempting to track the Technology - Telecom segment of the equity market. The Indxx 5G & NextG Thematic Index tracks the performance of companies engaged in the smartphone segment of the telecom and technology sectors.
Costs
When considering an ETF's total return, expense ratios are a crucial factor, as cheaper funds can significantly outperform their more expensive counterparts in the long term if all other factors remain equal. The annual operating expenses for this ETF are 0.70%, making it one of the more expensive products in the space.
The 12-month trailing dividend yield of 1.45% is another aspect to consider when evaluating the fund's potential returns. While a high dividend yield may seem attractive, investors should also consider the underlying investments and their historical performance.
Sector Exposure and Top Holdings
Delving into an ETF's holdings is essential before investing, despite its numerous benefits, including diversified exposure that minimizes single stock risk. Most ETFs are transparent products that disclose their holdings on a daily basis. Looking at individual holdings, Xiaomi Corporation (class B) (1810.HK) accounts for about 2.14% of total assets, followed by Nec Corporation (6701.JP) and Zte Corporation (class H) (763.HK).
The top 10 holdings account for about 15.71% of total assets under management. This concentrated exposure may not provide the desired level of diversification that investors seek in an ETF.
Performance and Risk
The ETF has added about 6.80% so far this year and was up about 16.26% in the last one year (as of 05/26/2025). In the past 52-week period, it has traded between $74.67 and $92.10. The ETF has a beta of 0.87 and standard deviation of 17.76% for the trailing three-year period.
With about 109 holdings, it effectively diversifies company-specific risk. However, investors should consider the underlying holdings' performance and historical trends when evaluating the fund's potential risks and rewards.
Alternatives
The First Trust Indxx NextG ETF carries a Zacks ETF Rank of 3 (Hold), which is based on expected asset class return, expense ratio, and momentum among other factors. Thus, NXTG is a reasonable option for those seeking exposure to the Technology ETFs area of the market.
Investors might also want to consider some other ETF options in the space. A well-diversified portfolio that includes various sector-specific ETFs can provide a more comprehensive risk management strategy.
Conclusion
The First Trust Indxx NextG ETF (NXTG) offers broad exposure to the Technology - Telecom segment of the equity market, making it an attractive option for investors seeking diversified returns with reduced single stock risk. However, investors should carefully evaluate the fund's costs, sector exposure, and historical performance before making any investment decisions.
While passively managed ETFs offer numerous benefits, they are not without risks. Investors must consider their individual financial goals and risk tolerance when selecting an ETF that aligns with their investment strategy. By understanding the underlying holdings and evaluating the fund's potential returns, investors can make informed decisions and create a well-diversified portfolio that meets their unique needs.