On a longer timeline, this ETF has also underperformed many ETFs that investors commonly purchase when they are worried about the risk of a recession. Companies like Meta and Alphabet only had modest revenue growth in Q1 2023. The Vanguard Communication Services ETF's top three holdings (in the chart below) significantly underperformed the S&P 500 in 2022. Larger Companies: Most communications services ETFs invest in larger growth stocks, which underperformed the S&P 500 in 2022. Other safe havens: Other safe havens have become popular in the last 1-2 years, as some investors are turning to commodities and other investments to beat inflation. There are several factors that may have resulted in this underperformance. However, communication services stocks actually underperformed the S&P 500 in 2022. One investment area investors often turn to when global economic conditions become riskier is communication services. However, many of these stocks will likely outperform in the coming years. Communication services stocks have not performed very well, and earnings growth has been lacklustre in recent years. However, consumers will likely still be under pressure and may be price sensitive to 2023 price increases. Incentives, like the Affordable Connectivity Program, may help support the growth of communication services companies. Delinquencies in credit card, auto, and mortgage loans have also increased. Many US consumers are taking on debt to fund their lifestyles. Consumer debt rose to a record high of $16.9 trillion recently. However, consumers may be more price sensitive in 2023, especially since many US consumers have had to take on record amounts of debt. Many of these companies will be increasing prices in 2023-2024, so growth will likely be driven by price increases rather than new customer acquisitions. Therefore, it seems best to focus on higher-yielding companies that will have stable growth this decade. Statista projects that the US communication services industry will only have a 1.4% CAGR through 2028. Both of these factors could allow communications stocks to perform better in 20.
Moreover, some of the more disruptive growth stocks could recover following their poor performance in 2022. Wireless and broadband companies could be safe in this environment, as US consumers will not likely drop these services. The Vanguard Communication Services ETF ( NYSEARCA: VOX ) is also an interesting ETF to follow. based companies may be able to outperform, and many of these stocks have 5+% dividend yields. In my last article, I noted how select international companies in emerging markets might be a safer bet in this environment, as these companies can grow more robust due to the lower penetration rates in certain frontier and emerging markets. Select communications services stocks may be safer investments amid rising inflation and slower economic growth this year.
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