Grab the Mobile Revolution and a Yield Near 5% in 1 Simple Buy

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect the world's telecom giants to thrive over time as our planet's population grows and the proliferation of smartphones, tablets, and other communication devices continues, the iShares S&P Global Telecommunications ETF (NYSE: IXP  ) 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 iShares ETF's expense ratio -- its annual fee -- is a relatively low 0.48%. It recently yielded a satisfying 4.9%, to boot.

This ETF has performed rather well, topping the world market over the past three, five, and 10 years. 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 13%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Some global telecom companies had strong performances over the past year. Sprint Nextel (NYSE: S  ) , America's third-biggest wireless carrier, soared 29%. It hasn't paid a dividend since 2007, as it has been struggling, but there are catalysts investors can be hopeful about, such as the upcoming release of the iPhone 5, which is likely to sell briskly. Still, the company has significant debt, and it's unclear how successful its unlimited data plan will be, though some are quite optimistic that paired with an iPhone, it will draw many consumers.

CenturyLink (NYSE: CTL  ) , meanwhile, jumped by 26%. America's third-largest telecom company, it recently yielded 6.8%. The company has been streamlining itself, cutting down from five to three operating divisions. CenturyLink has invested in some big acquisitions, buying Qwest and SAVVIS last year, with the latter bringing in cloud-computing exposure. Bears worry about the company's heavy debt and not-so-promising landline business, but it has been developing other income streams. Its free cash flow has been growing, too. Management recently explained that it's expecting investments in converting from copper to fiber-based connectivity to pay off in the long run.

Other companies didn't do as well last year, but could see their fortunes change in the coming years. Spain-based telecom giant Telefonica  (NYSE: TEF  ) , for example, sank 33%, in part due to the financial crisis there. Things aren't that bleak, though, as it actually generates much of its revenue from Latin America, where economies are healthier and growing faster than much of Europe. It's getting some positive attention from Wall Street (along with negative attention), and has temporarily suspended its dividend, which had been yielding more than 11%.

France Telecom (NYSE: FTE  ) , meanwhile, shed 19%, and recently yielded a whopping 12% -- though it plans to reduce its payout next year. It needs to expand beyond Europe, where markets are fairly saturated at this point. It's doing so in sub-Saharan Africa, actually, where its majority-owned Orange division has enjoyed subscriber growth rates above 20% for its mobile service. It carries a hefty debt load, too.

The big picture
Global demand for communication services isn't going away any time 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.

The mobile revolution is still in its infancy, so it's tough to get a handle on which companies will succeed over the long haul. For our analysts' take on it, check out our free report, "The Next Trillion-Dollar Revolution," which reviews a compelling company at the forefront of the trend. Hundreds of thousands have requested access to previous reports, and you can access this new report today by clicking here -- it's free.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of France Telecom, but she holds no other position in any company mentioned. Click here to see her holdings and a short bio. The Motley Fool owns shares of France Telecom. Motley Fool newsletter services have recommended buying shares of France Telecom. The Motley Fool has a disclosure policy.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (2) | Recommend This Article (3)

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  • Report this Comment On September 28, 2012, at 12:09 AM, reggidmalc wrote:

    A good review of IXP. I like the near-5% yield coupled with global exposure to information utilities. There are more and more smartphones out there that will pay for the wireless service. But take a look at the portfolio ...AT&T, Verizon and Vodaphone and a few others are the big holdings. I own IXP.

  • Report this Comment On September 28, 2012, at 1:05 AM, SuntanIronMan wrote:

    While I do like the telecoms and dividend payments, with that ETF you might as well just buy T and VZ and skip the expense ratio. For a "global" ETF, so much of it is made up of just those two US companies.

    18.41% AT&T

    10.90% Verizon

    11.80% Vodafone (Vodafone owns 45% of Verizon Wireless).

    For actual global telecom exposure, the iShares MSCI ACWI ex US Telecommunications Services Sector Index Fund (AXTE) seems like the better buy (assuming you want to buy a global ETF).

    Despite it being "ex US", you still get a decent amount of US-exposure though Vodafone and a slightly bigger percentage of Deutsche Telekom (with their T-Mobile US subsidiary). And for that, you get a much more globally diversified group of telecom stocks.

    You also get a bigger yield with the same expense ratio.

    (I do not own either ETFs.)

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