Make Money in Telecom the Easy Way

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Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you expect telecommunications companies to thrive in the coming years, the iShares Dow Jones U.S. Telecom ETF (NYS: IYZ) could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The telecom ETF's expense ratio -- its annual fee -- is a relatively low 0.48%.

This ETF doesn't have the most impressive performance record, beating the S&P 500 over the past three years, but trailing it over the past five and 10 years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

With a relatively low turnover rate of 29%, this fund isn't frantically and frequently rejiggering its holdings, as many funds do.

What's in it?
Several of this ETF's components made strong contributions to its performance over the past year. Level 3 Communications (NAS: LVLT) , for example, gained 52% over the past year, and though it has a lot of debt, its believers are excited about its multiyear deal to facilitate Netflix's (NAS: NFLX) streaming service.

Other companies didn't add as much to the ETF's returns last year, but could have an effect in the years to come. Frontier Communications (NYS: FTR) , notable for its 10% dividend yield, lost about 1%. It's a wireline company like fellow ETF components Windstream (NYS: WIN) and CenturyLink (NYS: CTL) , and it took on a lot of debt while boosting its size by buying Verizon's (NYS: VZ) wireline business.

The big picture
Demand for telecommunications isn't going away anytime soon. A well-chosen ETF can grant you instant diversification across any industry or group of companies -- and make investing in and profiting from it that much easier.

ETFs can help you find the way to better investing results. To find some great ETF investing ideas, take a look at The Motley Fool's special free report, "3 ETFs Set to Soar During the Recovery."

At the time this article was published Longtime Fool contributorSelena Maranjianowns shares of Netflix, Windstream, and Verizon Communications, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of and puts on Netflix. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy

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