Investors’ preference for defensive, low beta sectors this year is lifting telecommunications stocks and the corresponding exchange traded funds, such as the Vanguard Telecommunication Services ETF (NYSEArca: VOX) and the iShares U.S. Telecommunications ETF (NYSEArca: IYZ).
Although speculation is intensifying that the Federal Reserve is nearing its first interest rate increase of 2016, perhaps as soon as later this month or in July, VOX has been durable. VOX, one of the largest and least expensive telecom ETFs, is higher by 9.1% year-to-date.
Telecommunications ETFs like IYZ are also benefiting from the Federal Reserve backing off of raising interest rates this year, an important factor because telecommunications is one of the most rate-sensitive sectors.
International telecom stocks and exchange traded funds represent an option for yield-starved investors that are also looking to reduce their exposure to rising U.S. Treasury yields. That theme can be accessed with the iShares Global Telecomm ETF (NYSEArca: IXP).[related_stories]
VOX “has small-cap and midcap stocks, it is largely a big-cap fund, with a median market capitalization of $18.5 billion. Two-thirds of the portfolio, which tracks an MSCI index, is in integrated telecoms. It fell out of the IBD ETF Sector Rotation index Friday,” reports Investor’s Business Daily.
Currently, in a uneven market where raw materials-related sectors are underperforming in a depressed commodities environment, the telecom space has stood out as a positive driver of market earnings. Telecom services are seen as one of the few ares of positive earnings growth.
“Vanguard Telecommunications’ chart is forming a base with a potential buy point at 94.25. The price behavior has been much calmer during the nine-week-old basing period than in the prior consolidation (from May 2015 to March), which suffered from some sharp price moves. That change in character is a plus in chart readers’ eyes,” adds IBD.
For more news and strategy on the Telecom market, visit our Telecom category.
Vanguard Telecommunication Services 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.