Checking In: Dialing Up A Better Telecom ETF (TGEM, IYZ, VZ)

Let's be honest: Even in this day and age of sexy smartphones, telecom stocks are pretty boring. Verizon VZ, the largest U.S. mobile phone carrier, was one of the three worst performing stocks in the Dow Jones Industrial Average in the first quarter. Rival AT&T T has been a Dow dog for longer than shareholders care to remember. Basically, old school telecom stocks are dividend plays. That's it and there's not much more enthusiasm for telecom ETFs. Year-to-date, the SPDR S&P International Telecommunications Sector ETF IST is up just 1.1%. Giving credit where credit is due, the iShares Dow Jones US Telecom Index Fund IYZ has risen nearly 6.1% in 2012. Both of those performances pale in comparison to an unheralded telecom ETF, the EGShares Telecom GEMS ETF TGEM. TGEM is up 14% year-to-date, indicating that it is still possible to find robust capital appreciation in the telecom universe, one merely needs to know where to look. As is par for the course with EGShares ETFs, TGEM focuses on emerging markets, though Hong Kong is the fund's largest country weight at 15.2% and that is a developed market. South Africa, Brazil, Malaysia and Mexico all receive double-digit allocations as well. Russia, Turkey, India, China and Indonesia round out TGEM's country exposure. TGEM, which debuted in June 2011, is about three-quarters allocated to mobile telecom providers with the remainder going to fixed-line providers. While the fixed-line exposure may not seem compelling, consider that telecom penetration, be it wireless or fixed-line, is low in many of TGEM's constituent countries compared to the Western world. And that is something to consider it comes to TGEM. Despite the fact that the ETF is still in its rookie year and is thinly traded, there is a legitimate long-term investment thesis here. Hey, this is telecom we're talking about. This is the epitome of a long-term sector. Sure, everyone and his sister in the U.S. and Western Europe has a cell phone. Mobile penetration can even be considered high in China, but other markets such as Indonesia, Malaysia and Turkey offer real growth on the telecom front and TGEM is perhaps the best way to precisely hone in on that theme. Those with an appetite for risk and a long-term time horizon might want to consider TGEM as their first stopping point among telecom ETFs. Investors that already hold a "boring" telecom name such as AT&T or Verizon may also want to consider TGEM. With AT&T and Verizon, you've already got yield and low-beta. Pair those traits with TGEM's growth potential and you might just have a savvy and more exciting way of playing what's usually a boring sector.