The telecommunications industry is identified as a major
driver of global economic recovery. Unprecedented growth in
high-speed mobile Internet traffic, in particular for wireless
data and video, has transformed the industry into the most
evolving, inventive, and keenly contested space. In addition, the
emergence of wireless broadband technology has created several
new service areas, which offer huge growth potential.
Currently, the U.S. Telecommunications Industry is evolving
around 5 broad factors. These include factors like, the wireless,
gradually becoming the future of the telecom industry and
consequently spectrum is its key word. High-speed fiber-based
network is projected to expand more aggressively, especially for
video/TV offerings. (Read:
ETFs on the Move after Bernanke Press
In addition, consolidation within the industry will continue
mainly due to shortage of airwaves and for attaining economies of
scale. Innovative products will be launched in areas of
m-commerce, virtualization and cloud-based technology, high-speed
metro Ethernet, to name a few.
Apart from these, there still remains ample scope for
expansion in the U.S. According to the Federal
Communications Commission, nearly a fifth of rural American
households lack broadband access.
The lack of public airwaves (spectrum) in the
telecommunications industry results in a high barrier to entry.
The U.S. telecom market is controlled by just four national
players, as regional low-cost operators are not eligible to
compete with these large carriers. (Read:
Winning ETF Strategies for the second half
Furthermore, it is not easy to establish a new telecom carrier
since it will require government approval to transmit voice,
data, and video on public airwaves. Spectrum licenses are limited
and therefore quite expensive. Moreover, the deployment of
network infrastructure requires significant capital expenditure,
which very few entities can afford.
We believe the overall economic dynamics may shift in favor of
the telecommunications industry as it is a major infrastructure
product for both the emerging and the developed nations.
Telecommunications is one of the very few industries to witness
considerable technological improvement even under recession. The
continuous improvement in products and networks coupled with
inventions by industry players provide a major thrust to the
Moreover, growing demand for technically superior products has
been the silver lining for the telecommunication industry in an
otherwise tough environment. Metro Ethernet, IPTV, cloud
computing, managed IP services are some of the major innovations
in recent times. These developments are also helping telecom
equipment manufacturers, infrastructure solutions providers, and
mobile phone makers to consolidate their finances. (Read:
3 Top Ranked Financial ETFs to buy now
to Play the Sector
Against this backdrop, investors seeking to tap the growth
potential of the highly competitive telecom sector may take a
closer look at the ETF approach to reap maximum benefit from
investing in this sector. This technique can help to spread out
assets among a wide variety of companies and reduce company
specific risks for a very low cost. Below, we highlight the ETFs
in this sector in greater detail for Telecom ETF investors:
iShares S&P Global Telecommunications ETF (
IXP is one of the most popular Telecom ETF is this space.
Launched in Nov 2001, this ETF tracks the S&P Global 1200
Telecommunications Sector Index. The fund has nearly $483.68
million of assets under management and a trading volume of
roughly 10,000 shares a day. The fund charges an expense ratio of
48 basis points a year.
The fund holds 37 stocks in its portfolio and has a
concentrated approach in the top ten holdings with 69.31% of the
asset base invested in them. Among individual holdings, top
stocks in the ETF include AT&T Inc., Vodafone group plc. and
Verizon Communications Inc. with asset allocation of 16.55%,
12.21% and 11.80%, respectively.
Diversified Telecommunications Services and Wireless
Telecommunications Services are the two major sectors with asset
holdings of 66.58% and 32.65%, respectively. This ETF offers a
dividend yield of 4.46%.
Vanguard Telecommunication Services ETF (
Another popular fund in the Telecom ETF space is VOX. Launched
in Sep 2004, this ETF seeks to track the performance
corresponding to the benchmark MSCI US Investable Market
Telecommunication Services 25/50 Index. It has assets under
management of nearly $647.9 million and a trading volume of
roughly 20,000 shares a day. The fund charges an expense ratio of
14 basis points a year.
The fund holds 34 stocks in its portfolio and has a
concentrated approach in the top ten holdings with 70.8% of the
asset base invested in them. Among individual holdings, top
stocks in the ETF are Verizon Communications, AT&T and Sprint
Nextel. Integrated Telecommunications Services, Wireless
Telecommunications Services and Alternative Carriers are the
three major sectors with asset holdings of 61.7%, 26.8% and
11.5%, respectively. This ETF offers a dividend yield of
SPDR S&P Telecom ETF (
Incepted in Jan 2011, XTL ETF tries to match the returns of
the S&P Telecom Select Industry Index, before expenses. The
fund manages an asset size of nearly $7.15 million and a trading
volume of roughly 20,000 shares a day. The fund charges an
expense ratio of 35 basis points a year.
The fund holds 51 stocks in total in its basket. However, this
ETF is not following any concentrated approach as the top ten
stocks hold only 28.17% of the asset base invested in them.
Among individual holdings, top stocks in the ETF include NII
Holdings Inc., Clearwire Corp., and ViaSat Inc. with asset
allocation of 3.66%, 3.17% and 2.95%, respectively.
Communications Equipment, Wireless Telecommunications Services
and Integrated Telecommunication Services are the three major
sectors with asset holdings of 54.54%, 20.13% and 14.75%,
respectively. This ETF offers a dividend yield of 2.81%.
iShares Dow Jones US Telecom ETF (
Incepted in May 2000, IYZ ETF tracks investment results before
fees and expenses corresponds to the price and yield performance
of the Dow Jones US Select Telecommunications Index. The fund
manages assets worth of nearly $454.24 million and a trading
volume of roughly 139,708 shares a day. The fund charges an
expense ratio of 47 basis points a year.
The fund holds 25 stocks and has a concentrated approach in
the top ten holdings with 59.68% of the asset base invested in
them. Among individual holdings, top stocks in the ETF include
AT&T, Verizon Communications and Sprint Nextel with asset
allocation of 9.04%, 8.52% and 7.12%, respectively. Fixed Line
Telecommunications and Mobile Telecommunications are the two
major sectors with asset holdings of 56.50% and 43.27%,
respectively. This ETF offers a dividend yield of 2.53%.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
ISHARS-GLB TELE (IXP): ETF Research Reports
ISHARS-DJ TELE (IYZ): ETF Research Reports
VIPERS-TELE SVC (VOX): ETF Research Reports
SPDR-SP TELCM (XTL): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report