The Comprehensive Guide To Telecom ETFs [iShares S&P Global Telecommunicat. (ETF), iShares Dow Jones US Telecom (ETF)]

telecommunicationThe 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.

While the growth momentum is expected to be maintained in the U.S. over the near term, the major impetus is likely to come from emerging markets of China, India, Brazil and Russia. Carrier expenditures have increased in Japan and even major telecom operators in Western Europe, the most vulnerable region economically, have raised their budget.

Currently, the U.S. Telecommunications Industry is evolving around 5 broad factors. These include wireless gradually becoming the future of the telecom industry and the consequent popularity of spectrum. High-speed fiber-based network is projected to expand more aggressively, especially for video/TV offerings.

In addition, consolidation within the industry will continue mainly due to shortage of airwaves and 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 (FCC), nearly a fifth of rural American households lack broadband access.

Despite the massive growth in fiber-to-the-home networks, we believe that wireless networks will boost growth in the telecom industry. Moreover, the sector is witnessing a fundamental change.

The focus of the operators has shifted from voice calls to data and video. Any new network standard aims at faster data connectivity, quick video streaming with high resolution and rich multimedia applications.  (Read: 3 Bond ETFs Surging as interest rates tumble)

We also believe that the U.S. telecom industry will witness more mergers and acquisitions in 2014. Owing to the rising popularity and demand for the scarce and valuable wireless spectrum, mergers and acquisitions have increased exponentially.

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. Below, we highlight the ETFs in this sector in greater detail for Telecom ETF investors: (See all telecom ETFs here)

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 $519.26 million of assets under management and an average trading volume of roughly 71,875 shares a day in the last 3 months. The fund charges an expense ratio of 48 basis points a year.

The fund holds 34 stocks in its portfolio and has a concentrated approach in the top ten holdings with 70.29% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Vodafone group plc., AT&T Inc. and Verizon Communications Inc. with asset allocation of 14.38%, 14.03% and 11.09%, respectively.

Diversified Telecommunications Services and Wireless Telecommunications Services are the two major sectors with asset holdings of 66.26% and 33.39%, respectively. This ETF offers a dividend yield of 3.57%.

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