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Q4 Outlook for Oil & Gas ETFs Telecom

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The U.S. telecom industry has lately emerged as an intensely contested space where success thrives largely on technical superiority, quality of services and scalability. Thus, in order to stay abreast of competition, existing players need to be constantly on their toes to introduce innovative products or merge with other companies despite strict vigil by the Federal Communications Commission (FCC). In the near future, the U.S. telecom industry is slated to witness further mergers and acquisitions (M&A) and product diversifications. (Read: 4 Multi Asset ETFs to Lower Portfolio Risk )

Spectrum Auctions to Boost Network Capacity

Wireless networks are the key for future growth of the overall telecom industry. As wireless networks run on radio frequency, spectrums (airwaves) have naturally become the most sought after commodity in the industry. The FCC, which concluded an Advanced Wireless Servies-3 (AWS-3) spectrum auction in Jan 2015, accumulated a record-breaking $44.89 billion. The FCC also plans to conduct a broadcast incentive (spectrum with TV broadcasters) auction in 2016 to ease the pressure on wireless operators and thereby ensure uninterrupted transmission of data/voice packets.

Unexpected high bidding for AWS-3 spectrum clearly indicates that telecom operators expect the demand for mobile data and video services to rise substantially in the near future. The spectrum license winners from different regions are gearing up to upgrade their respective networks to gain a competitive edge. Wireless network standards are continuously evolving around the globe to offer faster speed. This, in turn, is likely to result in increased capital expenditures and a surge in demand for telecom infrastructure gears.

Momentum to Continue

The need to remain connected is a human need. An era of digitization and technology is essentially built on this human need. It is here that telecommunications come to the fore as a necessary utility. The need for telecommunications in both rural and urban areas as well as its role in the infrastructural development of an economy is of vital importance. Telecommunications is one of the few industries to have seen rapid technological improvement even during recession. Owing to the significance of this service as an infrastructure product, we expect the overall economic dynamics to shift in the industry's favor. (Read: 5 High Quality ETFs for an Uncertain Market )

Unprecedented growth in high-speed mobile Internet traffic, in particular with respect to wireless data and video, has transformed the industry into the most evolving, inventive and keenly contested space. Any new network standard that emerges aims at providing faster data connectivity, quick video streaming with high resolution and rich multimedia applications.

The U.S. telecommunications industry is presently comfortably settled on the growth trajectory and the momentum is likely to continue through 2015. The rising demand for technologically superior products has been a silver lining for the telecommunication industry in an otherwise tough environment. Uninterrupted advancement in telecom technologies helped telecom operators adopt newer business models in order to boost revenues.

ETFs to Tap 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 Global Telecommunications ETF ( IXP )

IXP is one of the most popular Telecom ETF available in the market. Launched in Nov 2001, this ETF tracks investment results before fees and expenses corresponds to the price and yield performance of the S&P Global 1200 Telecommunications Sector Index. The fund has nearly $418.3 million of assets under management and an average trading volume of roughly 63,886 shares a day in the last 3 months. The fund charges an expense ratio of 47 basis points a year. (Read: 5 ETFs to Buy & Hold for the Next 5 Years)

The fund holds 30 stocks in its portfolio and has a concentrated approach in the top ten holdings with 72.79% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T Inc., Verizon Communications Inc., and Vodafone Group Plc. with asset allocation of 17.02%, 15.79% and 7.73%, respectively. Integrated Telecommunication Services, Wireless Telecommunication Services and Alternative Carriers are the three major sectors with asset holdings of 73.72%, 24.66% and 1.13% respectively. This ETF offers a dividend yield of 3.63%.

Vanguard Telecommunication Services ETF ( VOX )

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 $957.4 million and an average trading volume of roughly 74,143 shares a day in the last 3 months. The fund charges an expense ratio of 12 basis points a year.

The fund holds 32 stocks in its portfolio and has a concentrated approach in the top ten holdings with 71.40% of the asset base invested in them. Among individual holdings, top stocks in the ETF are AT&T, Verizon, and SBA Communications Corp. Integrated Telecommunication Services, Alternative Carriers and Wireless Telecommunication Services are the three major sectors with asset holdings of 61.80%, 19.40% and 18.60%, respectively. This ETF offers a dividend yield of 2.69%.

SPDR S&P Telecom ETF ( XTL )

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 $24.7 million and an average trading volume of roughly 20,769 shares a day in the last 3 months. The fund charges an expense ratio of 35 basis points a year.

The fund holds 56 stocks in total in its basket. However, this ETF is not following any concentrated approach as the top ten stocks hold only 26.86% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Motorola Solutions Inc., Ubiquiti Networks Inc. and Frontier Communications Corp. with asset allocation of 3.00%, 2.79% and 2.77%, respectively. Communications Equipment, Integrated Telecommunication Services, Alternative Carriers, Wireless Telecommunications Services and Application Software are the five major sectors with asset holdings of 59.46%, 15.24%, 11.83%, 11.54% and 1.61% respectively. This ETF offers a dividend yield of 1.24%.

iShares US Telecommunications ETF ( IYZ )

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 $407.11 million and an average trading volume of roughly 235,547 shares a day in the last 3 months. The fund charges an expense ratio of 45 basis points a year.

The fund holds 24 stocks and has a concentrated approach in the top ten holdings with 61.97% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T, Verizon, and SBA Communications with asset allocation of 11.85%, 10.40% and 5.85%, respectively. The four major sectors of this ETF include Integrated Telecom, Wireless Telecom, Alternative Carriers and Communications Equipment with asset holdings of 48.42%, 29.74%, 18.47% and 3.08% respectively. This ETF offers a dividend yield of 2.49%.

Fidelity MSCI Telecom Services Index ETF ( FCOM )

Incepted in Oct 2013, FCOM ETF tracks investment results before fees and expenses corresponds to the performance of the MSCI USA IMI Telecommunication Services 25/50 Index. The fund manages assets worth of nearly $105.6 million and an average trading volume of roughly 33,447 shares a day in the last 3 months. The fund charges an expense ratio of 12 basis points a year.

The fund holds 25 stocks and has a concentrated approach in the top ten holdings with 69.86% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Verizon, AT&T and CenturyLink Inc., with asset allocation of 22.56%, 22.08% and 4.36%, respectively. Diversified Telecommunication Services and Wireless Telecommunication Services are the two major sectors of this ETF with asset holdings of 81.63% and 18.07%, respectively. This ETF offers a dividend yield of 3.13%.

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ISHARS-GLB TELE (IXP): ETF Research Reports

VIPERS-TELE SVC (VOX): ETF Research Reports

SPDR-SP TELCM (XTL): ETF Research Reports

ISHARS-US TELE (IYZ): ETF Research Reports

FID-TELECOM (FCOM): ETF Research Reports

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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