Fidelity MSCI Communication Services Index ETF (FCOM)
The communication services sector—what it contains and why it is grouped together
FCOM is built on the MSCI USA IMI Communication Services 25/50 Index, a framework that groups together companies whose primary business is moving information, entertainment, or voice between people. The sector includes traditional broadcasters and publishing houses that have been around for decades, telecommunications carriers that own the pipes, and newer digital platforms whose entire business is connecting people to content and to each other. It is a diverse grouping held together by the economic function of communication rather than by shared cost structures or business models.
The communication services sector is a practical grouping for investors seeking broad exposure to firms that make money by capturing and distributing attention—whether that attention is monetized through advertising, subscriptions, content licensing, or telecommunications fees. A radio broadcaster, a streaming video service, a telephone company, and a social media platform all appear in the index because they all operate in the business of communication, though their economics and risks differ sharply.
Holdings span old and new media
The fund’s portfolio captures both the establishment media firms—traditional television networks, newspapers, and entertainment studios—and the newer digital-first companies that have disrupted them. Large social media platforms, video streaming services, and digital advertising exchanges dominate FCOM’s larger positions by market capitalization, which means the fund has significant exposure to the winners of the digital media shift, but at valuations that reflect that winning status. Older media companies—television broadcasters, cable operators, publishing houses—appear in the portfolio but often with smaller weightings because their stock prices and market capitalizations have shrunk as their business models have faced disruption.
This blend creates an interesting dynamic: the fund offers exposure to the high-growth digital platforms that have captured advertising and consumer attention, but at the cost of higher valuations, alongside exposure to declining legacy media assets that may trade cheaply because their economics are eroding. The net effect depends on how an investor weights the prospect of growth at premium multiples against the value offered by deteriorating but cheap assets.
Concentration, megacap influence, and the platform effect
Like many sectors that have undergone digital transformation, the communication services index is heavily concentrated in a handful of very large companies. The technology platforms that intermediate communication and entertainment—search, social media, video streaming, e-commerce marketplaces—have captured enormous economic value because they benefit from network effects: the more people use them, the more valuable they become, which attracts more users and reinforces their dominance. FCOM’s concentration in these winning platforms means the fund’s returns are heavily dependent on whether those dominant positions persist.
The largest holdings are typically global digital platforms and the largest technology companies that derive substantial revenue from advertising or digital services. Because these firms are so large, their stock prices and valuation changes have outsized impact on the fund’s performance compared to the broader market. This is not necessarily a weakness—if the largest communication platforms justify their valuations through persistent competitive advantages and earnings growth, the concentration is appropriate—but it does mean FCOM will sometimes diverge sharply from a broader diversified index.
Advertising dependency and cyclicality
A large portion of communication services revenue comes from advertising, which is a cyclical industry closely tied to corporate profitability and consumer confidence. When businesses expect strong growth and rising consumer spending, they increase advertising budgets, and communication services companies’ revenues and profits rise. When recession looms, advertisers cut budgets first, and communication services companies are among the first to feel the impact. FCOM therefore carries recession risk—during economic downturns, both traditional media and digital advertising can face sustained headwinds, which would pressure the fund’s returns.
The shift of advertising from traditional media to digital platforms has been epochal, but the total advertising budget has not grown proportionately. This means that digital platforms have captured market share from traditional media, making growth in digital advertising increasingly dependent on expanding the overall advertising pie or on continued share consolidation. As digital advertising matures in developed markets, growth rates are slowing, which has already manifested as earnings disappointments from major platforms.
Regulatory scrutiny and the political environment
Communication services companies face unique regulatory and political risks. Social media platforms are subject to content moderation demands, privacy regulation, and antitrust scrutiny from governments around the world. Telecommunications carriers face rate regulation and must invest heavily in infrastructure that is politically sensitive. Broadcast and streaming companies face content regulation and licensing requirements that vary by country. These regulatory risks are not evenly distributed: U.S.-based technology platforms face different pressures than European-regulated carriers.
The political environment also matters. Changes in how regulators view data privacy, algorithmic content curation, and market concentration can shift the economics of digital platforms materially. An investor in FCOM is exposed to these regulatory unknowns, which are difficult to quantify but not negligible.
Segment and valuation notes—old meets new
The communication services index includes companies trading at wildly different valuations: some digital platforms trade at very high multiples of earnings, while some traditional media companies trade at single-digit multiples because their businesses are in secular decline. This valuation spread means FCOM has exposure to both growth and value, though the growth exposure is to firms with higher risk of valuation compression and the value exposure is to firms with higher risk of further deterioration.
Looking at FCOM’s actual holdings and sector weights reveals the true character of the fund at any given moment. A portfolio heavily weighted toward social media and streaming services is fundamentally different from one weighted toward telecommunications carriers, even though they are grouped in the same sector. Investors should examine the fund’s current composition to understand what they are actually buying.
How to research communication services exposure
An investor considering FCOM should review the fund’s holdings, expense ratio, and performance relative to the MSCI index it tracks and relative to other broad technology and discretionary funds. The sector spans such different business models that understanding the composition matters more than understanding the category.
Key research points include: the major digital platforms’ advertising revenue trends and margins; the performance of traditional media companies and whether their decline is decelerating or accelerating; telecommunications companies’ capital intensity, return on invested capital, and dividend sustainability; and broader trends in media consumption—where people are spending time and attention. Investors should also monitor regulatory developments around content moderation, data privacy, and antitrust enforcement, as these disproportionately affect communication services valuations.
FCOM is best suited to investors seeking broad exposure to global communication and media companies, who are comfortable with the fund’s heavy concentration in digital platforms, and who can tolerate the cyclical advertising dependency and regulatory risks that come with this sector.