The Complete Guide to Telecom ETFs - ETF News And Commentary

The U.S. telecom industry is likely to witness more mergers and acquisitions going forward. Owing to the rising demand for scarce and valuable wireless spectrum, mergers and acquisitions have increased exponentially. While established players need more spectrums to gain competitiveness, small players prefer to collaborate with strong rivals rather than trying to establish a nationwide foothold which is extremely capital intensive.
 
Severe spectrum crunch coupled with gradual smartphone adoption are compelling wireless operators to seek other options to raise revenues. Further, growing demand for technically superior products has been the silver lining for the telecommunication industry in an otherwise tough environment. (Read: 3 Sector ETFs to Avoid, and One to watch for gains)
 
Despite the massive growth in fiber-to-the-home networks, we expect wireless networks to provide a major impetus to the telecom industry. Wireless network standards are continuously evolving around the globe to offer faster speed. After significant growth of the next-generation 4G LTE network deployment, LTE-A (Long-Term Evolution Advanced) wireless network standard is gradually gaining a strong foothold worldwide.  (Read: Best ETF Strategies for the fourth quarter)
 
A major intra-industry shift has recently taken place in the high-speed Internet (Broadband) market. For the first-time in the 65-year long history of the cable TV industry, broadband customer count surpassed the TV viewers count. According to a recent report by the Leichtman Research Group Inc. (LRG), there were approximately 85.9 million high-speed data subscribers at the end of the last quarter. Out of this, cable TV operators command around 50.7 million customers (59%) and the remaining 35.2 million (41%) customers belong to telecom operators.
 
The cloud-managed WiFi market has become a major growth driver for telecom operators as increasing number of large and mid-sized business enterprises are adopting this technology. Large business enterprises generally have presence throughout the world. A strong and robust wireless network is essential for these companies to maintain connections with remote sites. Cloud-managed WiFi network has become indispensable for these large business houses as it offers several advantages like central manageability, smaller physical footprint and linear scalability.
 
The telecom infrastructure developer’s market is witnessing a technical change globally. So far the main thrust of the communications service providers had been on developing advanced hardware that enabled them to attain enhanced speed, scalability and reliability.

However, recent developments suggest that operators are gradually shifting focus from a hardware centric growth model to an IT/software centric business model. The primary reason behind this shift is the significant growth of cloud-based virtual networking.
 
ETFs to Tap the 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 $479.13 million of assets under management and an average trading volume of roughly 59,974 shares a day in the last 3 months. The fund charges an expense ratio of 48 basis points a year.
 
The fund holds 32 stocks in its portfolio and has a concentrated approach in the top ten holdings with 70.42% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Verizon Communications Inc., AT&T Inc. and Vodafone Group Plc. with asset allocation of 15.89%, 14.23% and 6.85%, respectively. Diversified Telecommunication Services, Wireless Telecommunication Services and Other are the three major sectors with asset holdings of 67.91%, 26.76% and 5.34%, respectively. This ETF offers a dividend yield of 11.50%.
 
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 $768.80 million and an average trading volume of roughly 39,237 shares a day in the last 3 months. The fund charges an expense ratio of 14 basis points a year.
 
The fund holds 30 stocks in its portfolio and has a concentrated approach in the top ten holdings with 74.60% of the asset base invested in them. Among individual holdings, top stocks in the ETF are Verizon Communications, AT&T and SBA Communications Corp. Integrated Telecommunication Services, Alternative Carriers and Wireless Telecommunication Services are the three major sectors with asset holdings of 64.70%, 18.20% and 16.90%, respectively. This ETF offers a dividend yield of 3.68%.
 
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 $25.62 million and an average trading volume of roughly 8,375 shares a day in the last 3 months. The fund charges an expense ratio of 35 basis points a year.
 
The fund holds 57 stocks in total in its basket. However, this ETF is not following any concentrated approach as the top ten stocks hold only 23.89% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Aruba Networks Inc., Palo Alto Networks Inc. and Infinera Corp. with asset allocation of 2.59%, 2.50% and 2.46%, respectively. Communications Equipment, Alternative Carriers, Integrated Telecommunication Services and Wireless Telecommunications Services are the four major sectors with asset holdings of 63.58%, 14.10%, 13.63% and 8.69% respectively. This ETF offers a dividend yield of 1.16%.
 
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 $595.61 million and an average trading volume of roughly 201,132 shares a day in the last 3 months. The fund charges an expense ratio of 43 basis points a year.
 
The fund holds 26 stocks and has a concentrated approach in the top ten holdings with 67.62% of the asset base invested in them. Among individual holdings, top stocks in the ETF include Verizon Communications AT&T, and CenturyLink Inc. with asset allocation of 13.07%, 12.74% and 7.13%, respectively. The three major sectors of this ETF include Fixed Line

Telecommunications, Mobile Telecommunications and Technology Hardware & Equipment with asset holdings of 64.43%, 32.60% and 2.76% respectively. This ETF offers a dividend yield of 2.38%.
 
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 $71.5 million and an average trading volume of roughly 19,662 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 70.72% of the asset base invested in them. Among individual holdings, top stocks in the ETF include AT&T, Verizon Communications and SBA Communications with asset allocation of 22.51%, 22.12% and 4.53%, respectively. The two major sectors of this ETF include Diversified Telecommunication Services and Wireless Telecommunication Services with asset holdings of 80.74% and 19.03% respectively. This ETF offers a dividend yield of 1.57%.
  
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 > 

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
 
VIPERS-TELE SVC (VOX): ETF Research Reports
 
SPDR-SP TELCM (XTL): ETF Research Reports
 
ISHARS-US TELE (IYZ): ETF Research Reports
 
To read this article on Zacks.com click here.
 
Zacks Investment Research
 
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