ETFs To Play Obama's Spectrum Stance

NEW YORK (TheStreet) -- President Obama on Monday backed plans by regulators to nearly double the spectrum available for wireless devices, paving the path to opportunity for wireless providers, wireless infrastructure companies and other technology giants.

More specifically, the president's memorandum calls for federal agencies to free up nearly 500 megahertz of spectrum controlled by the government. This spectrum is expected to be used primarily for mobile broadband, which has witnessed headwinds due to an increase in consumer demand for laptops and smartphones.

Of the 500 megahertz the president wants to make available, 220 megahertz, or 44%, is controlled by federal agencies such as NASA, the Federal Aviation Administration and the military, which use it for various kinds of communications systems.

Although the spectrum proposal mirrors a plan unveiled by the Federal Communications Commission earlier this year, the president's endorsement will likely bolster the FCC's proposal and could play a significant role in finalizing the proposal.

If holders of spectrum give up their current positions and support both the president and FCC, the following exchange-traded funds are likely to feel the benefits:

• Broadband HOLDRs(BDH), which boasts digital wireless communications giant Qualcomm(QCOM) and wireless infrastructure companies Alcatel-Lucent(ALU) and Tellabs(TLAB) in its top holdings. BDH closed at $10.42 on Monday.
• Technology Select SPDR(XLK), which allocates 11.27% of its assets to Apple(AAPL), 6.87% to AT&T(T) and 2.67% to Qualcomm. As spectrum increases and becomes more readily available, the number of dropped calls will likely decrease and Web connections on devices like the iPhone will likely become faster, benefiting both Apple and AT&T. XLK closed at $21.52 on Monday.
• PowerShares Dynamic Networking(PXQ), which boasts infrastructure software giant VMware(VMW) and broadband communications company, Broadcom(BRCM) as its top holdings. PXQ closed at $19.36 on Monday.

Although an opportunity seems to exist in these ETFs, it is important to be mindful that the current holders of spectrum are likely to not give up their spectrum without a fight, which could put a damper on returns. To help mitigate the effects of this, the use of an exit strategy which idenitifies specific price points at which an upward trend could come to an end is of importance.

According to the latest data at SmartStops.net, such price points are as follows: BDH at $10.36, XLK at $21.02 and PXQ at $18.84.

Written by Kevin Grewal in Houston

At the time of publication, Grewal was long XLK.

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