Dialing Up Global Telecoms
Published on Wednesday, 13 June 2012 22:58 Written by Todd Shriber
Amid a challenging macroeconomic environment on both sides of the Atlantic and the Pacific, volatility has increased to heights in recent weeks that most conservative investors just aren’t comfortable. That explains the flight to some bond funds and at the sector level, market volatility usually means the masses flock to health care, staples and utilities stocks and ETFs.
Don’t forget telecommunications names. Stocks such as Dow components AT&T (NYSE: T) and Verizon (NYSE: VZ) are prized for their conservative posture and dependable, robust dividends. Think of telecom stocks as the epitome of "boring, but beautiful" plays. That’s a good thing in the current market environment, but some investors need a little dash of excitement with their boring plays and when it comes to telecom, the iShares MSCI ACWI ex US Telecommunication Services Sector Index Fund (NYSE: AXTE) can provide that excitement.
Obviously, AXTE’s title gives away the fact this ETF is not excessively allocated to AT&T and Verizon, a rarity among telecom ETFs. Missing out on U.S. telecom names through AXTE does not mean investors are incurring unnecessary risk.
With a weight of just under 10%, China is AXTE’s largest emerging markets allocation. Mexico is next at 5.4%. AXTE offers exposure to 13 other markets that are either emerging or frontier nations, but those nations combine for barely 12% of the fund’s total weight. So overall, roughly three-quarters of AXTE’s weight lies in developed markets.
Those markets include the U.K. and Japan, which represent about 29% of the fund’s weight. What’s really important regarding this ETF is that it offers investors proof that many of the sectors in the U.S. that are known for strong dividends and fat yields are actually home to even better payouts and fatter dividends overseas.
That’s the case with telecom stocks. AT&T and Verizon yield 5.1% and 4.7%, respectively. Vodafone (NASDAQ: VOD), AXTE’s top holding, yield’s 7.5%. France Telecom (NYSE: FTE), AXTE’s tenth largest holding, yields a whopping 14.5%. Those are just two examples, but the picture is clear: Foreign telecom stocks offer some fairly impressive yields.
As for AXTE, the ETF has a trailing 12-month yield of 7.35%, according to iShares data. That compares to just 2.79% for the iShares Dow Jones U.S. Telecommunications Sector Index Fund (NYSE: IYZ), an ETF that allocates more than 35% of its weight to AT&T and Verizon. Not to mention, over the past month and the past three months, AXTE has outperformed IYZ. Maybe there is something to dialing long-distance for telecom ETFs after all.