Telecom, Wireless and Smartphones ETFs Success

Unlike our "pound-foolish, penny-wise" government, U.S. families slashed their monthly expenses and slowed the consumer-based economy. At least that's the general assumption.

Yet American consumers have not cut back on every line item across the family budget. Since the recession's inception in Q4 2007, citizens have increased their spending on mobile phone equipment by 17%. They've also upped their outlay on pets by 14% and their communication services (cable, internet, wireless) by 5%.

Theoretically speaking, the iShares Telecom Fund (NYSE: IYZ) and the Internet Architecture HOLDRS (NYSE: IAH) should have been beneficiaries of the spending spree on communication services; the Wireless HOLDRS (NYSE: WMH) could have surged on smart phone equipment consumption.

Alas, this was not necessarily the case. Only the Internet Architecture Fund (NYSE: IAH) outpaced the S&P 500 since the start of the recession. Moreover, the apparent victory is entirely attributable to a 20% weighting in America's favorite culture stock, Apple (Nasdaq: AAPL).

Note: One of the more amusing registrations with the SEC for new exchange-traded products is the upcoming "Smart Phone ETF." Perhaps telephone equipment's resistance to the recent recession can be credited for giving rise to an index of companies that could include Samsung, Apple, LG, and Research In Motion.

Absent the Smart Phone ETF or a Pet-Lover ETF, however, there hasn't been a clear-cut ETF winner for increases in consumer spending. And while most of the decreases in consumption came at the expense of consumer discretionary items like household furnishings, televisions and motor vehicles, SPDR Select Consumer Discretionary (NYSE: XLY) actually outperformed the S&P 500 in the Great Recession.

The lesson? Personal consumption is merely one slice of the information pie. One may try to use singular data points such as increases in spending or decreases in spending, and you would end up overlooking things like profitability, fundamental valuation, technical price trends, relative strength, dividend income, VIX volatility and so forth. 

Along these lines, then, the iShares Global Telecom Fund (NYSE: IXP) probably hasn't looked this attractive in quite some time. Telecom has one of the highest relative strength percentile rankings for any exchange-traded investment over the last 3 months; meanwhile, IXP offers an approximate annual yield of 3.75% as well as exposure to global players like Vodafone (Nasdaq: VOD).

 

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Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Gary Gordon, MS, CFP is the president of Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC. Gary Gordon, Pacific Park Financial, Inc, and/or its clients may hold positions in the ETFs, mutual funds, and/or any investment asset mentioned above. The commentary does not constitute individualized investment advice. The opinions offered herein are not personalized recommendations to buy, sell or hold securities. At times, issuers of exchange-traded products compensate Pacific Park Financial, Inc. or its subsidiaries for advertising at the ETF Expert web site. ETF Expert content is created independently of any advertising relationships. You may review additional ETF Expert disclosure details here.