This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why I Like Vanguard's Telecom ETF: Opinion

NEW YORK ( ETF Expert) -- After nearly four years, retail investors have begun to exit low-yielding investment grade bonds for the perceived potential of stocks.

This "rotation" of money flow into equity funds is putting pressure on fund managers to keep pace with the broader benchmarks. In other words, if they hold back cash in the hopes of a better buying opportunity, the broader S&P 500 may run away from them.

So the markets move higher on good news. They move lower on bad news in the morning, yet quickly recover in the afternoon as institutional dollars pursue "bargains" of 0.5% over more substantive price pullbacks.

In truth, complacency hasn't taken over just yet. The percentage of S&P 100 stocks over a 200-day trendline is roughly at 80%. Over the last three years, complacency has more commonly been associated with 85% to 90%. The premier contrarian indicator, the equity put-call ratio, has yet to demonstrate a dearth of short-sellers (0.35). In essence, there may still be room to run.

That said, I already have plenty of broad market exposure. It is protected with stop-limit loss orders. My money management clients are unlikely to benefit from chasing.

The answer in my silver-and-gold-lined playbook is to pursue a low-cost ETF that is less volatile than the S&P 500, has more yield than both the S&P 500 as well as an intermediate-term investment grade bond benchmark, is less correlated to the S&P 500 than most sectors of the economy and presents compelling potential for capital appreciation.

That may be a tall order. Then again, I think that Vanguard Telecom (VOX) fits the description nicely. (I recently talked about my plans for telecom, and other 2013 portfolio positions, in this December interview .)

Here are five reasons why I like VOX right this minute.

1. Beta risk is lower than the S&P 500. Beta risk typically describes the correlated volatility of an ETF in relation to the S&P 500, or another significant benchmark. In the case of VOX, it carries a beta of 0.65, or roughly 2/3 the volatile price movement of the S&P 500.

In the same manner that some investors like the slow-n-steady pace of the utilities segment, VOX offers less of the roller-coaster experience that has been unnerving for so many participants.

2. Relative Strength Index eadings are in the middle of the range. The last two times that the S&P 500 was hitting the top of its RSI range was mid-September and late March -- both preceded the sharpest sell-offs for stocks in 2012. It follows that many relative strength watchers prefer to pick up assets at the lower end or middle of the RSI range. VOX is smack dab in the middle.

3. Economic demand is improving. Gartner, a premier info tech researcher, believes that telecom services spending will rise 2.4% in 2013. In fact, the company is calling for a significant rebound, expressing optimism that Americans will continue to satiate their appetite for info tech involving telecom.
1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
SYM TRADE IT LAST %CHG
AAPL $112.57 -0.64%
FB $90.05 -1.10%
GOOG $630.89 0.08%
TSLA $247.56 -0.37%
YHOO $32.72 -1.30%

Markets

Chart of I:DJI
DOW 16,478.25 -164.76 -0.99%
S&P 500 1,976.96 -11.91 -0.60%
NASDAQ 4,808.28 -20.0450 -0.42%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs