The big news out of the telecom sector is Vodafone’s (NYSE: VOD) decision to sell its 45% stake in Verizon Wireless to Dow component Verizon (NYSE: VZ) for $130 billion in one of the sector’s largest deals on record.
News of large-scale telecom mergers and acquisitions activity has put the spotlight on the iShares U.S. Telecommunications ETF (NYSEArca: IYZ) and the Vanguard Telecom Services ETF (NYSEArca: VOX). That is understandable because IYZ and VOX are the two largest U.S.-focused telecom ETFs, but both lack significant exposure to Vodafone. [Telecom ETFs Look Undervalued]
Investors looking for broader access to a possible return of telecom sector M&A should focus on those ETFs with ample Vodafone exposure because the U.K.-based company could be a buyer or a target. After the Verizon deal, AT&T (NYSE: T) could pay up to $124 billion for what’s left of Vodafone, reported Matthew Campbell and Amy Thomason for Bloomberg, citing Sanford C. Bernstein analyst Robin Bienenstock.
Whether Vodafone is a possible buyer or potential prey, the ways to play options lie with ETFs such as the iShares Global Telecom ETF (NYSEArca: IXP). AT&T and Vodafone are IXP’s top-two holdings, combing for over 29% of the ETF’s weight. Importantly, IXP is also home to companies that AT&T has reportedly mulled deals with in the past and firms that Vodafone itself could afford to acquire after selling its Verizon Wireless stake. [ETFs for Telecom Mergers and Acquisitions]
Those companies include Spain’s Telefonica (NYSE: TEF), Germany’s Deutsche Telekom and Orange. Vodafone’s cash hoard will be more than recent market values for Orange or Telecom Italia, also a member of IXP’s lineup, according to Bloomberg. IXP is home to 36 stocks and over $526 million in assets under management.
A small ETF with even more leverage to Vodafone’s status as both a buyer and target is the SPDR S&P International Telecommunications Sector ETF (NYSEArca: IST). Vodafone is IST’s largest holding at 20.4% of the ETF’s weight. However, Telefonica and Deutsche Telekom combine for over 13% with Orange and Telecom Italia combining for another 4% of the $31.9 million ETF’s weight.
As is the case with U.S. telecom stocks, investors can expect strong yields with global telecom ETFs. IST has a dividend yield of nearly 4% while IXP’s trailing 12-month yield is almost 4.1%.
iShares Global Telecom ETF
ETF Trends editorial team contributed to this post.