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Global Telecom ETF Merits a Look


For some investors, it is hard to get excited about the slow growth, rate-sensitive telecommunications sector. The sector is one of just three expected to show declining revenue growth as fourth-quarter earnings reports trickle in.

Still, telecom firms are expected to show earnings growth and some conservative investors still cover the sector as a prime dividend destination. [Consider Telecom ETFs as Earnings Season Looms]

International telecom stocks and exchange traded funds represent an option for yield-starved investors that are also looking to reduce their exposure to rising U.S. Treasury yields. The iShares Global Telecomm ETF (IXP) can help accomplish that objective and the added good news is that the $607.2 million fund has an alluring technical outlook.

“After a strong, seven-week rally off the 40-week moving average, IXP has been in consolidation mode since last October. As shown on the chart, the current consolidation has given back less than 38% of the last wave up, which is quite bullish,” notes Deron Wagner of Morpheus Trading Group.

“Tuesday’s reversal candle could also offer another higher low within the base….if it holds. Higher lows show a tightening of the price action, which is usually a bullish sign after a lengthy consolidation,” added Wagner.

IXP is off 1.2% to start 2014 while its U.S.-focused equivalent, the iShares U.S. Telecommunications ETF (IYZ) , has traded modestly higher. IXP sports a trailing 12-month yield of 3.41% and it is worth remembering that in 2013, the top-performing telecom  ETF was one with a global focus: The SPDR S&P International Telecommunications Sector ETF (IST) . [This Telecom ETF Soared in 2013]

Although IXP is framed as an international play, it does not exclude U.S. stocks as the world’s largest economy is IXP’s largest country weight at 28.3%. Dow components AT&T (NYSE: T) and Verizon (VZ) are IXP’s second- and third-largest country weights, respectively, combining for 24.1% of the ETF’s weight.

Aside from a combined 7.6% weight to China and Mexico, IXP is focused on developed markets and the kicker is an almost 15% weight to U.K.-based Vodafone (VOD), a company widely rumored to be the next mega telecom takeover target.

iShares Global Telecomm ETF

ETF Trends editorial team contributed to this post.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.