By Jason Raznick
The fate of the income investor is well-known at this point. Yields on 10- and 30-year Treasuries have been flirting with multi-decade lows in recent weeks and in an environment of depressed interested rates, putting cash in the bank is almost a waste of time.
That means investors must search for yield elsewhere. The telecom sector, be it through individual stocks or ETFs, is a fine place to start. The strategy team at S&P Capital IQ recommends investors have “marketweight” exposure to U.S. telecom names, but is a bit more bullish on European telecoms with an “overweight” rating.
“We believe that certain telecom companies, while exposed to macroeconomic weakness, offer favorable total return potential as their relatively stable customer bases provide strong cash flow to support the dividend and reinvest in the business for growth,” S&P analyst Todd Rosenbluth said in a note.
The research firm has “overweight” ratings on two global telecom ETFs: The iShares MSCI ACWI ex-US Telecommunications Services Index Fund (AXTE) and the SPDR S&P International Telecommunications ETF (IST).
IST is the larger of the two funds by assets with about $12.4 million in assets under management compared to $2.6 million for AXTE, but the iShares offering has a lower expense ratio at 0.48% compared to 0.5% for the SPDR fund.
“We believe investors seeking international telecom exposure have two appealing alternatives, based on our holdings-based ranking methodology. However, digging a little deeper, the asset allocation and the cost factors highlight that there are differences between the two ETFs,” Rosenbluth said in the note.
Both ETFs are heavily exposed to familiar European telecommunications names such as Vodafone (VOD), Telefonica (TEF) and France Telecom (FTE) though AXTE does offer exposure to China Mobile (CHL) as well.
Year-to-date, IST is down about 10% while AXT is down just over 8%.