IXP iShares Global Comm Services ETF

Although many investors remain laser-focused on the domestic market, a more global approach can also reveal great opportunities. This is arguably the case for many who look at relatively safe global sectors, which are known for their solid prospects, strong dividends, and low volatility.

One popular choice in this segment is of course the telecom sector. This space has, in many countries, a virtual monopoly on many services while in several others—such as the U.S.—an oligopoly is present. This lack of competition is obviously great news for the firms in the space, while the immense startup costs make new entrants a very remote possibility (see the Comprehensive Guide to Telecom ETFs).

However, there is one downside to this approach in many markets; growth is limited. Many telecom firms thus have few growth prospects and must instead rely on dividends in order to entice investors. This technique may make these firms poor choices for some seeking big swings, but for those looking for high yields, this is a welcomed approach.  

While some investors might focus on IYZ or VOX for this exposure, we believe that a great way to play telecom ETFs is by looking at the iShares S&P Global Telecommunications Sector ETF (IXP). This product is an easy way to target telecoms from around the globe, while still providing high yields, and minimal extra risks.

Yet, while it is an interesting choice for yield, this fund hasn’t participated much in the current rally, as it has added just under 3% YTD. We think it could be poised for a surge in the coming weeks and months though, based on both technical and fundamental factors described below:

Technical Look  

Although the fund hasn’t surged, its short term moving averages have managed to stay above longer-term levels. The 10-Day SMA is now comfortably above the longer-term 200-Day SMA, suggesting continued bullishness for this ETF (Is the Dollar ETF About to Surge?).

Meanwhile, the fund’s RSI is showing a level just below 60, suggesting that the fund isn’t in overbought territory, and that it still has some more room to run before it gets ahead of itself. This is further confirmed by an upswing in the Parabolic SAR, although this figure should definitely be monitored closely.

 

Fundamentals

Investors have been focused in on high dividend paying stocks for quite some time, and this could be another excellent way to accomplish that objective. The fund has a 30-Day SEC yield over 5%, easily crushing not only bond yields, but many so-called high dividend ETFs as well (see Three Overlooked High Yield ETFs).

This could make this fund a great choice for those seeking a big payout, global exposure, and lower volatility. Plus, the fund still has about one-third of its exposure in the U.S. market, a factor that should make this a comfortable choice for those who traditionally focus on domestic stocks.

This trend may also make this fund popular from an inflow perspective, especially from those who have big holdings in various sectors that have been bid up over the past few months. So, if this product becomes the hot new yield destination, it could help to carry this telecom ETF towards new highs in the second quarter.

Bottom Line

Yes, IXP is a bit concentrated in its top holdings as the big three account for more than a third of the portfolio. But the safety of this product is going to be tough to beat in the equity world, and especially so for funds that have global holdings (see 4 International ETFs Yielding More Than 5%).

Instead, investors should focus on the robust payout in this product, and its strong technical position which suggests more bullishness ahead for this ETF. If that wasn’t enough, investors should also note that we currently have a Zacks ETF Rank of 1 or ‘Strong Buy’ on this fund, so it might be time to take a closer look at this often glossed-over space.

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ISHARS-GLB TELE (IXP): ETF Research Reports
 
ISHARS-DJ TELE (IYZ): ETF Research Reports
 
VIPERS-TELE SVC (VOX): ETF Research Reports
 
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