The telecommunications industry is recognized as a major contributor to a global economic recovery thanks to a booming wireless business and its solid outlook. The smartphone market, the hot segment in the wireless zone, actually still has growth potential, and could remain a driver going forward.
This specialized segment of the telecom sector started gaining momentum in recent years and represents one of the few growth opportunities left for developed market investors (read: A Comprehensive Guide to Telecom ETFs).
As per market researcher Gartner, in the second quarter of 2013, smartphone sales exceeded feature phone sales for the first time and accounted for 51.8% of the overall mobile phone sales.
Shipments too were at a record high. The performance in the third quarter was even better than the preceding quarter in terms of shipments, affirming a continued winning momentum of the smartphone market.
The rising middle-income population especially in the emerging markets and lower pricing thanks to the low-cost Android solutions made this bull-run possible. Statistics also bear out the bullish trend.
Research agency IDC expects worldwide smartphone shipments to exceed one billion units in 2013, up 40% year over year. This would mark the first year to record such a huge volume.
In fact, strong global demand for smartphones aided the worldwide mobile phone market which is now expected to finish 2013 with 7.3% year-over-year growth, jumping from just 1.2% growth in 2012.
IDC now expects total smartphone shipments to reach 1.7 billion units in 2017 and lead the overall mobile phone market in the developed economies. Given this bullish trend, a look at some of the top ranked ETFs in the space could be a good way to target the best of the segment.
One way to find a top ranked ETF in the communication equities space is by using the Zacks ETF Ranking system (read: Zacks ETF Rank Guide).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETFs in the context of our outlook for the underlying industry, sector, style box or asset class.
Our proprietary methodology also takes into account the risk preferences of investors. ETFs are ranked on a scale of 1 (Strong Buy) to 5 (Strong Sell) while they also receive one of three risk ratings, namely Low, Medium, or High.
The aim of our models is to select the best ETFs within each risk category. We assign each ETF one of the five ranks within each risk bucket. Thus, the Zacks Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
For investors seeking to apply this methodology to their portfolio in the communication equities space, we have taken a closer look at the top ranked FONE. This ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ and is detailed below:
Launched in February 2011, First Trust NASDAQ CEA Smartphone Index Fund (NASDAQ:FONE) is a passively managed ETF that looks to track the performance of the Nasdaq OMX CEA Smartphone Index.
The product is well diversified from an individual security perspective, with Nokia accounting for 5.05% and taking the top spot. Compal Communications (3.51%), Samsung (2.97%) and Inventec (2.89%) hold the next three positions in the basket.