I must admit I didn’t give much importance to the telecom industry since the start of 2015 and yet it has been one of the best performers so far. Looking back over the years this industry has been disappointing, generating returns below that of the market.
The iShares Stoxx Europe 600 Telecommunications ETF returned 40 per cent to shareholders over the period. At first glance one would think it’s a good return over a five-year horizon. However, the matter of fact is that for the first four years, the index only returned 10 per cent to shareholders. The other 30 per cent came year-to-date.
The reason for this out performance year-to-date is that for the first time in many years we are seeing companies in this sector beat analysts’ expectations and also upgrading their outlook for the rest of the year. Another positive attribute of this industry is that most of the companies in this sector are trading on a dividend yield above three per cent.
So why did I not participate in all of this? When quantitative easing was announced, I went back to the textbook and recalled those industries which outperformed the market when central banks pumped money into the economy.
At the start of this year I recommend to go overweight autos, banks, financial services and the construction industries. They are all industries which generally outperform the market when a bullish outlook is on the cards. The telecoms industry wasn’t one of them.
Today, I look back at the performance of these industries and am satisfied with the performance so far. History does repeat itself!
Year-to-date, the iShares Stoxx Europe 600 automobiles and parts ETF is up 22 per cent, the construction ETF is up 24 per cent, the banks ETF is up 20 per cent and the financial services ETF is up 26 per cent. All ETFs achieved satisfactory results and proved to be a good alternative to the iShares Stoxx Europe 600 market ETF which is up 20 per cent.
No regrets there! Despite the fact that the performance so far has been more than satisfactory, I continue to believe that these sectors have more to give and an investor should remain overweight in them.
However, I must admit having had an exposure to the telecom industry would have continued to add alpha to my performance. Year-to-date, the iShare Stoxx Europe 600 Telecoms ETF is up 26 per cent.
Five companies worth looking into in this sector include the following:
Telefonica SA (20% up YTD)
Telefonica SA provides telecommunications services mainly to countries in Europe and Latin America. The Company offers fixed-line and mobile telephone, Internet, and data transmission services to residential and corporate customers.
Orange SA (7% up YTD)
Orange SA provides telecommunications services to residential, professional, and large business customers. The Company offers public fixed-line telephone, leased lines and data transmission, mobile telecommunications, cable television, Internet and wireless applications, and broadcasting services, and telecommunications equipment sales and rentals.
Vodafone Group plc (25% up YTD)
Vodafone Group PLC is a mobile telecommunications company providing a range of services, including voice and data communications. The Company operates in Continental Europe, the United Kingdom, the United States, Asia Pacific, Africa and the Middle East through its subsidiaries, associates, and investments.
Deutsche Telekom AG (28% up YTD)
Deutsche Telekom AG offers telecommunications services. The company offers a full range of fixed-line telephone services, mobile communications services, Internet access, and combined information technology and telecommunications services for businesses.
Telecom Italia SpA (40% up YTD)
Telecom Italia SpA., through subsidiaries, offers fixed line and mobile telephone and data transmission services in Italy and abroad. The company offers local and long-distance telephone, satellite communications, Internet access, and teleconferencing services.
Disclaimer: This article was issued by Kristian Camenzuli, Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.