Finding A Telecom ETF With International Exposure

Global sector exchange-traded funds give investors quite a different pattern of exposure than WisdomTree's international sector ETFs. Telecoms, which have been doing quite well in part due to constant merger activity and speculation, are a case in point. Many global sector ETFs tend to be dominated by American companies.

Trang Ho of IBD gives the following profile of the WisdomTree International Communications ETF (DGG) which includes 20 countries, with 20.98% of assets in United Kingdom firms, 15.62% in France, 7.6% each in Australia, Spain and Hong Kong, and 7.05% in Germany.

Of the 122 holdings, the top five account for 40% of assets. The top 10 holdings account for 61% of assets. The largest, Vodaphone (VOD), makes up 9.61%, followed by France Telecom (FTE) at 9.35%, Deutsche Telekom (DT) at 6.9%, China Mobile (CHL) at 6.61%, and Spain's Telefonica (TEF) at 6.32%. It has returned 23% in the past year, as of May 23 and is up 11% year to date and with a 0.6% dividend.

Meanwhile, the iShares S&P Global Telecommunications Sector Index (IXP) is 35% U.S. and only 65% foreign. U.K. firms take up 14.41%, followed by Spain, 7.87%; Japan, 7.62%; France, 4.92%; and Canada, 4.2%. Top holdings in the ETF include AT&T (T) at 17.96%; Vodafone, 10.25%; Verizon Communications (VZ), 8.05%; Telefonica, 7.87%; and Nippon Telegraph & Telephone (NTT), 4.01%. The top 10 holdings control 66% of assets. iShares S&P Global Telecom is 40% in the past 12 months and has gained 12% year to date.

Near term, the global sector ETF takes the prize, but when the US market lags the shoe will likely be on the other foot. Many global sector ETFs actually have more than 50% dedicated to US companies. Make sure you look under the hood before making your choices.

Comments

[Frank Li]

Not sure you can compare the Wisdom Tree ETF to the iShares ETF, because the Wisdom Tree ETF holds no US stocks. It's designed to add to US sector ETFs -- in this case, you'd use the iShares US Telecom Sector ETF and add the Wisdom Tree International Telecom Sector ETF, and that way you can control the degree of foreign exposure.

[Babar Bhatti]

The real growth opportunity is in the emerging market telecom companies, as I wrote here:
telecompk.net/2007/06/.../