ETFs dial in for smart-phone growth
These funds are well positioned to profit from a global wireless boom.
By Don Dion, TheStreet
Whereas the gadgets were once used mainly to stay in contact with friends and loved ones through phone calls and texts, consumers are increasingly turning to their iPhones, Droids and BlackBerry devices to connect with the world around them, surf the Internet, play games, check email and keep a constant eye on work.
Given the diverse capabilities of today's smart phones and our increasing desire to stay constantly connected with the world, it is no wonder that demand for these gadgets is strong and expected to increase.
In a report for Fortune, reporter Seth Weintraub predicts that we could see half a billion phones sold worldwide in 2011. Further, the author predicts that smart phones will surpass traditional computers next year as the No. 1 way consumers connect to the Internet.
Rampant growth in this sector will bode well for companies such as RIM, Google (GOOG), Apple and Motorola. Additionally, wireless service providers such as Verizon (VZ) and AT&T (T) should benefit as more consumers abandon their phone land lines in favor of more expensive data plans.
Finally, the companies responsible for producing the internal components of these products look primed for growth as well.
The body of companies that will benefit as the smart phone revolution takes hold is vast. Therefore, rather than viewing the industry from a stock-picking perspective, investors may find a diversified ETF best suited for taking on the sector as a whole.
The iShares S&P North American Technology-Multimedia Networking Index Fund (IGN) tracks more than 30 companies, including techs that have become household names in smart phones: RIM, Motorola, Cisco (CSCO), Qualcomm (QCOM).
In 2010, IGN's concentrated investing strategy has paid off. The fund has jumped 25%, beating out tech-focused funds with a broader reach such as the PowerShares QQQ (QQQQ).
Investors can access the smart-phone industry through an international lens as well. A number of companies outside of the U.S. have a direct impact on the production of these popular gadgets and will thrive as they increasingly become staples of our everyday business and social lives.
The iShares MSCI Taiwan Index Fund (EWT) is one of the best international ETFs for following smart-phone growth. Although the fund is designed to capture the strength of the broad Taiwanese economy, its performance is heavily reliant on that of the information technology sector.
Companies including Taiwan Semiconductor Manufacturing (TSM), Hon Hai Precision and HTC represent the fund's top three positions and make up a combined 26% of the fund's total index. All three play an essential role in creating various smart-phone components and models.
The smart-phone industry looks promising and will likely be an exciting region to watch in 2011. By utilizing funds such as IGN and EWT, investors can gain a front-row seat to the sector's growth and can profit as more people around the world turn to these gadgets to stay connected.
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