Make Money in Growing Telecom Services Stocks

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the telecommunications industry to thrive as we continue demanding more and more smartphones and other electronic devices, the Vanguard Telecom Services ETF (AMEX: VOX  ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The telecom ETF's expense ratio -- its annual fee -- is a low 0.24%.

This ETF has performed reasonably well, beating the S&P 500 over the past three years, on average, but lagging it by a smidge over the past five. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a low turnover rate of 21%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Level 3 Communications (Nasdaq: LVLT  ) gained 64%, gobbling up Global Crossing in a deal that has some scratching their heads. Still, its move into content delivery looks promising, as it has struck a deal with Netflix (Nasdaq: NFLX  ) to deliver its offerings. Along with other companies, Level 3 seems to be stealing some of Akamai's (Nasdaq: AKAM  ) thunder.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Rural telecoms Frontier Communications (NYSE: FTR  ) and CenturyLink (NYSE: CTL  ) shed about 30% and 8%, respectively, while Windstream (Nasdaq: WIN  ) finished with a flat showing over the past year. They've been challenged by many consumers dropping their fixed land line phones for cell phones in recent years. All is not lost, though, as these companies can profit by shifting their focus in part to business and broadband services. And for now, they're paying hefty dividends.

The big picture
Demand for telecom services isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

Learn about the best dividend ETFs. And if you're looking for some great investments beyond ETFs, consider these 10 Stocks for Your Retirement Portfolio.

Longtime Fool contributor Selena Maranjian owns shares of Akamai Technologies, Netflix, and Windstream, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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