The big news out of the telecom sector is Vodafone’s (VOD) decision to sell its 45% stake in Verizon Wireless to Dow component Verizon (VZ) for $130 billion in one of the sector’s largest deals on record.
News of large-scale telecom mergers and acquisitions activity has put the spotlight on the iShares U.S. Telecommunications ETF (IYZ) and the Vanguard Telecom Services ETF (VOX) . That is understandable because IYZ and VOX are the two largest U.S.-focused telecom ETFs, but both lack significant exposure to Vodafone. [Telecom ETFs Look Undervalued]
Investors looking for broader access to a possible return of telecom sector M&A should focus on those ETFs with ample Vodafone exposure because the U.K.-based company could be a buyer or a target. After the Verizon deal, AT&T (NYSE: T) could pay up to $124 billion for what’s left of Vodafone, reported Matthew Campbell and Amy Thomason for Bloomberg, citing Sanford C. Bernstein analyst Robin Bienenstock.
Whether Vodafone is a possible buyer or potential prey, the ways to play options lie with ETFs such as the iShares Global Telecom ETF (IXP). AT&T and Vodafone are IXP’s top-two holdings, combing for over 29% of the ETF’s weight. Importantly, IXP is also home to companies that AT&T has reportedly mulled deals with in the past and firms that Vodafone itself could afford to acquire after selling its Verizon Wireless stake. [ETFs for Telecom Mergers and Acquisitions]
Those companies include Spain’s Telefonica (TEF), Germany’s Deutsche Telekom and Orange. Vodafone’s cash hoard will be more than recent market values for Orange or Telecom Italia, also a member of IXP’s lineup, according to Bloomberg. IXP is home to 36 stocks and over $526 million in assets under management.
A small ETF with even more leverage to Vodafone’s status as both a buyer and target is the SPDR S&P International Telecommunications Sector ETF (IST) . Vodafone is IST’s largest holding at 20.4% of the ETF’s weight. However, Telefonica and Deutsche Telekom combine for over 13% with Orange and Telecom Italia combining for another 4% of the $31.9 million ETF’s weight.
As is the case with U.S. telecom stocks, investors can expect strong yields with global telecom ETFs. IST has a dividend yield of nearly 4% while IXP’s trailing 12-month yield is almost 4.1%.
iShares Global Telecom 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.