S&P Dials Up A Telecom ETF (VOX, IYZ, AAPL)
Telecom, a sector prized for its conservative nature and robust dividend yields, might be offering higher growth propsects for investments with exposure to wireless data services, according to a research note published by S&P Capital IQ.
Citing a wireless industry trade group, S&P Capital IQ notes "subscriber growth slowed to 7.4% over the 12-month period ending June 2011, versus 14.8% growth over the 12 months ending June 2005 while the wireless penetration rate reached 102.4% at the end of June 2011, which might be a sign that wireless growth will continue to slow, in our opinion."
Even in the face of slowing subscriber growth and lower penetration levels, two telecom ETFs have offered solid returns this year. The Vanguard Telecom Services ETF (NYSE: VOX) is up about 5.6% year-to-date while the rival iShares Dow Jones US Telecom Index Fund (NYSE: IYZ) is up slightly more than that.
S&P rates VOX Overweight, but is less bullish on the iShares Dow Jones US Telecom Index Fund, which it rates Marketweight. VOX has a current dividend yield of 3.13% while IYZ yields 2.91%.
"In our view, the deployment of high-speed 4G networks will encourage further Internet browsing, the use of streaming video, and use of video chat through programs such as Skype. We believe the U.S. service providers are now in a race to deploy their 4G networks as quickly as possible, with the majority of carriers now adopting LTE over Worldwide Interoperability for Microwave Access (WiMAX)," S&P said in the note.
Dow components AT&T (NYSE: T) and Verizon (NYSE: VZ) accounted for over 47% of VOX's weight at the end of 2011 while the two telecom gaints currently represents about 31% of IYZ's weight. S&P notes that at 28% of its weight, IYZ features the larger allocation to wireless stocks. VOX allocates about 22% of its weight to wireless names, S&P said.
While IYZ has the superior wireless exposure and is larger with $587.5 million in AUM compared to $441.6 million in AUM for VOX, the Vanguard offering earns the higher rating from S&P due in part to its 0.19% expense ratio, which is well below the 0.47% charged by IYZ.
Investors looking for a pure play ETF on the global smartphone craze might want to consider the First Trust NASDAQ CEA Smartphone Index Fund (Nasdaq: FONE). The First Trust NASDAQ CEA Smartphone Index Fund has sharply outperformed both IYZ and VOX and that ETF's top holding is iPhone maker Apple (Nasdaq: AAPL).
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