telecom etfs

Executive Summary

  • Steady growth for foreseeable future as wireless and data continue to outpace the economy in general
  • Ways to invest with ETFs:

Domestic Index – IYZVOX

Domestic Proprietary – PRFQPTE

Global/International – IXPDGG

Leveraged – LTL

Short – TLL

 

Investment case

The Telecommunications Industry Association has forecast the global telecom market to grow in excess of 9% for the next few years to nearly $5 trillion by 2011.

Growth of 7 – 9% in the U.S. and 10% growth internationally will be driven by wireless data, Voice over IP and business adoption of unified communications.

Growth could be slower if bandwidth and wireless network upgrades don’t keep pace with demand.  The battle for bundled residential services is also an issue for US service providers.

The equipment market is rebounding from the lows seen after the dot-com collapse based on the strength of broadband and wireless.

In sum, the telecom sector is on track to outpace the general economy for the foreseeable future.

 

Overview

There are multiple ways to invest in telecommunications with ETFs that vary by degree of sector focus and geographic diversity.

Domestic Service Providers

The $630 million iShares Dow Jones U.S. Telecommunications Sector Index Fund (IYZ) tracks an index of large telecom service companies such as AT&T (NYSE:T), Verizon (NYSE: VZ) and Sprint Nextel (NYSE: S). IYZ has a dividend yield of 2.7% and an expense ratio of 0.48.

Vanguard’s Telecommunication Services ETF (VOX) tracks a similar index and has the same top 3 holdings. VOX has a dividend yield of 3.2% and an expense ratio of 0.23.

Broader Exposure

The PowerShares FTSE RAFI Telecommunications & Technology Sector Portfolio Fund(PRFQ) tracks an index the largest U.S. telecommunications and technology equities. The Index weights stocks based on fundamental measures including book value, cash flow, sales and dividends. Top holdings includeMicrosoft (Nasdaq: MSFT), Verizon and AT&T. The fund has a dividend yield of 1% and an expense ratio of 0.74.

The PowerShares Telecommunications & Wireless Portfolio Fund (PTE) tracks an index that uses a rules-based weighting system that looks at growth, valuation, investment timeliness and risk factors to pick stocks with the greatest capital appreciation potential. Top holdings include DISH Network (Nasdaq:DISH), Comcast (Nasdaq: CMCSA) and DirectTV (Nasdaq: DTV). The fund’s dividend yield is 3% and expense ratio is 0.66.

International

On the international front, iShares offers the S&P Global Telecommunications Sector Index Fund (IXP). The fund tracks an index of 46 global telecom service companies with 71% of the portfolio outside of the U.S. Top holdings include AT&T, Vodafone (NYSE:VOD) and Telefonica (NYSE: TEF).

The fundamentally weighted WisdomTree International Communications Sector Fund(DGG) includes Vodafone, Telefonica and China Mobile (NYSE: CHL) in its portfolio. The fund’s dividend yield is 2.6% and expense ratio is 0.58.

Short and leveraged ETFs are also available.  UltraShort Telecommunications (TLL) and Ultra Telecommunications (LTL) are both from ProShares.

 

Top Performers

Largest US

Dow Jones U.S. Telecommunications Sector Index Fund (IYZ) – $621 million

Largest Global/International

S&P Global Telecommunications Sector Index Fund (IXP) – $427 million

Lowest Fee

Vanguard Telecommunication Services ETF (VOX) – 0.23%

 

See the directory.