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Outperforming Telecom ETFs Try to Break Out


The iShares Dow Jones US Telecom ETF (IYZ) is up 16.9% so far this year compared with a 9.6% advance for the S&P 500 as the market-beating sector tries to break out to new highs.

The telecom ETF has been outperforming since the end of April, notes Investors Intelligence technical analyst Tarquin Coe.

“That relative trend versus the S&P 500 is rallying again today and in doing so reasserting that five month move. Further outperformance is expected, with new price highs for 2012 likely over the next few weeks. Before the year-end a test of the 2011 high of $25.89 is expected,” he said in a newsletter Wednesday.

IYZ holds $625.2 million in assets and charges and expense ratio of 0.47%.

“Coupled to the rising trend, the fund is also somewhat defensive and currently yields 2.78%, putting grins on the faces of both momentum players and investors alike,” Coe wrote.

The ETF’s top two holdings are AT&T ( T) and Verizon (VZ) and together they comprise nearly 30% of the fund. There are 28 stocks in the portfolio.

“Major telecommunications firms’ prospects remain solid. Demand for smartphones and mobile broadband is still rising at an impressive clip,” says Morningstar analyst Robert Goldsborough. “All risks considered, we think IYZ could offer a compelling investment opportunity. At the end of the day, we think demand for phone, television, and Internet connectivity will continue to expand.”

Other ETFs for the sector include Vanguard Telecom Services (VOX) and SPDR S&P Telecom (XTL).

iShares Dow Jones US Telecom ETF

The opinions and forecasts expressed herein are solely those of John Spence, 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.