Telecom ETFs On the Line When the Market Rebounds

September 10, 2008 at 1:00 pm by Tom Lydon

It seems that telecom exchange traded funds (ETFs) have become disconnected for the year, with every company or holding in the negative zone. The last month hasn’t been as brutal for the bulk of this year has been for these funds, though.

Robert Holmes for The Street reports that each ETF holds so few companies that it could make the timeframe for a turnaround longer within these sector-targeted funds. The fewer the holdings, the more exaggerated the moves become for the ETF. Telecom has a tendency to do well when the market is healthy and do really poorly when things are going down.

Two stocks that are dominating this industry are Verizon (VZ) and AT&T (T). A large chunk of every telecom ETF is given to these companies. AT&T is down 19.1% year-to-date, while Verizon is off by 16.2%.

iShares Dow Jones U.S. Telecom (IYZ): AT&T is 21.4%; Verizon is 15.5%; down 20.4% year-to-date; down 0.1% for the last month
Vanguard Telecom Service (VOX): AT&T 20.8%; Verizon 19.9%; down 19.1% year-to-date; down 0.6% for the last month
Telecom HOLDRs (TTH): AT&T is 58.5%; Verizon is 24.3%; down 22% year-to-date; up 2.5% for the last month

A little more diversified is the PowerShares Dynamic Telecom & Wireless (PTE). Its top holding, American Tower Corp. (AMT), is 5.1% of the Fund. Verizon is 5.1%, and AT&T is 4.7%. Year-to-date, it’s down 17.9%, and in the last month it’s down 3.7%.