Investors are embracing defensive, low beta sector exchange traded funds, in significant fashion. Leaders of that trend are viewed as consumer staples and utilities ETFs, but telecom funds are delivering impressive performances as well.
Telecom ETFs such as the Vanguard Telecommunication Services ETF (NYSEArca: VOX) and the iShares U.S. Telecommunications ETF (NYSEArca: IYZ) are 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.
AT&T and Dow component Verizon (NYSE: VZ) combine for significant percentages of the lineups in IYZ and VOX. In the case of VOX, the Vanguard telecom ETF, those stocks combine for over 44% of that fund’s weight.
Related: 6 Telecom ETFs to Dial Into Verizon, AT&T, Vodafone
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).
Some analysts are bullish on big-name telecom stocks, including AT&T and Verizon, even though those stocks have run up this year. Importantly, those stocks are not stretched on valuation.
[related_stories]“From a valuation perspective, AT&T is trading at 14.2 times next-12-months price/earnings multiple, by our estimates, which is one turn higher than its five-year historical average of 13.1 times. The multiple range has been fairly tight, trading between 11.0 times-15.1 times at its peak (mid-2012 and early 2013). Verizon is currently trading at 13.9x NTM by our estimates, slightly off its historical average of 14.2 times,” according to a Wells Fargo Securities note posted by Barron’s.
Moreover, the industry has offered attractive dividend yields, which has helped attract value investors in a year where many are shunning the growth category. For instance, the Vanguard Telecommunication Services ETF , the largest telecom-related ETF, comes with a 3.76% 12-month yield and rose 9.9%.
Related: 46 Tech ETFs to Tap Into Big Growth Names
“AT&T is currently trading at 7.0 times, ahead of its historic average multiple of 6.0 times. It troughed at 5.1 times in second-half 2011, then again in third-quarter 2015, but has since rebounded and continues to creep higher. Similarly, Verizon is trading at 7.3 times currently, versus its historical multiple of 6.0 times. The multiple troughed at 5.1 times, but stayed fairly range-bound between 5.1 times-5.5 times in 2011-2013,” according to Wells Fargo.
Vanguard Telecommunication Services ETF
