The last three months have been characterized by extreme market volatility and devastating losses. When looking at the future, could the telecommunications industry and the exchange traded funds (ETFs) that track the industry help investors recoup some losses?
When compiling a list of investments to potentially purchase, Gary Gordon for ETF Expert says he is considering the following: downside risk, cash flows and technical strength. In general, the lower the downside risk, the higher the relative safety; the higher the cash flows through reliable dividends, the easier it is to project future financial statements; the potential investment should climb above its trendline.
When using this criteria, the telecom industry appears to be appealing, Gordon says. To take it a step further, in the this industry, the telecom ETFs that have international exposure tend to perform better and generate a lift in dividend yield then the ones that don’t. Lastly, these types of indexes performed much better than the broader benchmarks, like the S&P 500 SPDR Trust (SPY), which is down 38% year-to-date and down 28.2% over the past three months.
President-elect Barack Obama could give the industry another lift, too, as he has stressed what a shame he thinks it is that the United States ranks a paltry 15th in broadband access, behind countries such as Iceland, Finland, Canada and Korea. If some of his infrastructure investment money goes to this area, the sector’s ETFs could benefit.
iShares S&P Global Telecom (IXP): down 34.2% year-to-date and down 12.7% in the last three months.
WisdomTree International Communications (DGG): down 34.9% year-to-date and down 11.7% over the last three months
Both ETFs have broken their 50-day moving averages, but are still working their way toward the 200-day moving average, a strategy that we use to determine when to be in or out of an ETF.
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.