Telecommunications-focused ETFs significantly outperformed the S&P 500 Index in 2025 through August 1. The iShares U.S. Telecommunications ETF (IYZ), SPDR S&P Telecom ETF (XTL, and Fidelity Disruptive Communications ETF (FDCF) had total returns of 10.5%, 9.9% and 17.4%, respectively, in that period, compared to the 6.4% return for the iShares Core S&P 500 ETF (IVV). However, XTL and FDCF were more volatile than the broader market, with annualized volatilities of 26.7% and 23.7%, respectively, compared to 19.6% for IVV (see Table 1).
Several stock holdings in these ETFs received a substantial tax savings boost from the recently passed One Big Beautiful Bill Act. The bill creates permanent tax incentives in the areas of capital asset depreciation and expensing of domestic R&D costs. This has created significant cash tax savings for firms like AT&T, T-Mobile and Verizon, which are all held in the large telecom-focused ETFs.
OBBBA Creates Tax Incentives for Capital Investments
One of the key features of the OBBBA is the return of 100% bonus depreciation on qualified capital assets. 100% bonus depreciation allows a firm to exclude the entirety of an eligible investment from its taxable income in the first year, rather than having to depreciate it over multiple years. Under the old schedule, businesses could only deduct 60% of the asset cost in 2025 and 40% in 2026, as part of the phase-out of the original bonus depreciation in the 2017 Tax Cuts and Jobs Act.
The return of 100% bonus depreciation incentivizes companies to make larger investments, particularly in capital-intensive businesses like telecom. This means that carriers can immediately deduct the full cost of network equipment, towers, fiber deployments, and other infrastructure, rather than depreciating over many years.
The bill also reinstates immediate expensing of domestic R&D costs on a permanent basis, reversing prior rules that required amortizing such expenses. In aggregate, these tax changes provide substantial tax savings to large telecom firms and encourage more aggressive network investment. Table 2 summarizes the research done by CFRA’s fundamental equity team on the estimated tax savings for three large telecom firms in the U.S. CFRA’s equity analysts estimate that AT&T will save between $6.5 billion and $8 billion in cash over the next three years, with the savings expected to be deployed for fiber buildouts, pension contributions, and balance sheet management such as debt reduction. The team also expects that T-Mobile will use its $1.5 billion in savings for share buybacks and network expansion, and that Verizon will use its $1.5 billion to $2 billion in tax savings to strengthen its finances through debt reduction and fund a range of network-related capital investments.
Comparison of Holdings & Sector Exposure for Telecom ETFs
IYZ has a larger exposure to large telecom service providers than XTL and FDCF. As of August 1, 2025, it had 59.5% of its portfolio in the Communication Services sector with AT&T, Verizon and T-Mobile all among its top five holdings by weight. XTL has a lower weight in communication services (45.8%) relative to IYZ. Both XTL and FDCF did not have AT&T, Verizon or T-Mobile in their top five holdings as of August 1, 2025. While FDCF does have 57.3% of its weight in Communication Services, the stocks from that sector include Meta Platforms and Alphabet rather than large telecom carriers (see Table 3).
Similarly, the top contributors to YTD returns for IYZ are the large telecom carriers, while the returns for XTL and FDCF have been driven more by equipment providers and media firms. The top contributor to IYZ’s returns this year is AT&T, with Verizon also as one of the top five contributors. In contrast, the top return contributors for FDCF this year include tech and media-related firms like Sea Limited, NVIDIA Corporation and Reddit rather than telecom operators. Similarly, XTL’s returns this year have been led by equipment manufacturers like Lumentum and Calix.
XTL and FDCF have outperformed IYZ this year in terms of returns since tech and media-related businesses have had a strong 2025. However, FDCF’s top holdings like Nvidia, Meta and Alphabet more closely mirror a traditional large cap fund. For investors that want specific exposure to telecom providers, IYZ is a more targeted fund.
Looking Ahead
Telecom providers like AT&T, Verizon and T-Mobile should benefit significantly from the tax provisions in the OBBBA. If they can deploy that cash to drive earnings and growth, then this will benefit the ETFs that hold them, particularly IYZ, which has significant exposure to these stocks.
#Telecom #ETFs #Outperform #Tax #Incentives #Boost #Sector