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Investing in the backbone of business

The opportunity in a telecoms ETF.

The global telecommunications industry has become one of the most important components of the modern economy. Connectivity has become essential for doing business.

Over the last two decades, telecommunications technology has played a substantial role in promoting growth and development, reducing the costs of doing business, improving productivity and globalising markets. Today’s economy simply wouldn’t survive without telecommunications infrastructure behind it.

Telecommunications has also become an important investment theme, and it can be accessed directly through the iShares Global Telecom ETF, available on the Standard Bank Webtrader Platform. The ETF tracks the S&P Global 1200 Telecommunications Sector Index, which currently holds a basket of 32 stocks listed in markets throughout the world.

The ETF provides a good entry point to the sector due to its broad international exposure. Although its focus is primarily on developed markets such as the US, UK, Europe, Canada and Japan, it also holds companies that operate in China, Australia, Singapore and Mexico.

It’s main concentration is in the US, with its two largest holdings being Verizon Communications and AT&T. They carry weightings in the portfolio of 16.02% and 13.86% respectively.

The UK’s Vodafone Group is the fund’s third largest holding at 7.52%, with China Mobile fourth at 5.85%.

Investors may be attracted to the fund’s current price-to-earnings (P/E) ratio of 15.27, which compares favourably to the iShares Core S&P 500 ETF that shows a P/E multiple of 20.03. It also currently offers a dividend yield of 3.37%.

Over the last year, the fund has grown 6.39% in dollar terms.

Investors looking at the telecommunications industry should bear in mind that it is heavily regulated all over the world. There is therefore geopolitical risk in this sector, as changing regulations can have an impact on market dynamics and profitability.

For more information on trading offshore, visit Standard Bank’s Webtrader platform here.

Please consider contributing as little as R20 in appreciation of our quality independent financial journalism.

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