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Technology has fizzled since the Internet bubble burst, but its cousin, telecommunications, is doing fine. Apple's new iPhone is going to drastically raise the wireless stakes in coming months. You will probably be spending more yourself. Why not get some of that money back?
There are plenty of ways to do so, from individual stocks to mutual funds to exchange-traded funds. The best route I've found is the T. Rowe Price Media & Telecommunications Fund (PRMTX), which has gained 15.9% this year, as of June 13, and an average of 27.7% over the past five years.
Amid anxiety and uncertainty in most world stock markets, communications has a solid future, particularly since a lot of the capital spending required to wire the world has already been done. "Shareholders are getting the benefit now" of huge investments made over the past 15 years in infrastructure, says Henry Ellenbogen, portfolio manager of the T. Rowe Price fund. "This is a global space of rapid change. There's a lot of innovation and a tremendous opportunity for strong companies."
Ellenbogen is following five interlocking themes he expects to continue to buoy the media and telecoms group: emerging-markets wireless, the Internet, what he calls "all you can eat" wireless operators in the United States, domestic wireless data towers and the global billboard industry.
Murdoch's right, and wrong
Notably absent from this list is newspapers. Rupert Murdoch obviously lusts to own the The Wall Street Journal and has driven Dow Jones (DJ, news, msgs) stock to new heights. But Ellenbogen dismisses papers as the "analog version" of content generation. "I'm a big believer that if you have strong content you're going to be able to monetize it," he says, but newspaper companies are laggards in doing that.T. Rowe Price is the biggest institutional investor in Dow Jones. And Ellenbogen's fund is the most successful portfolio of its type. Despite its mandate, however, the fund doesn't own a single share of Dow Jones.
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That's because T. Rowe already owned 15% of Dow Jones in other accounts when Ellenbogen was named manager of the fund two years ago, the maximum position the firm will take in a company.
"This is the only time I've been restricted from buying something I would have been inclined to buy," Ellenbogen says.
Telecommunications, rather than media, dominates his portfolio, as it does its typical rival. That sector imploded in the bear market that began in 2000, tumbling 30% or more three years in a row. Since then, however, the group has raced to the front, leading most sectors for the past five years and all of them over the most recent 12 months. The average fund is up 39.3% in the past year, and the Price fund has soared 49.4%.
Amazon, Google on board
Ellenbogen is willing to make heavy bets on individual stocks. He has 47% of the fund's $1.97 billion of assets in the 10 largest positions. The top holdings are Amazon.com (AMZN, news, msgs), America Movil (AMX, news, msgs), American Tower (AMT, news, msgs), Bharti Tele-Ventures and Crown Castle International (CCI, news, msgs)."Interestingly, positions in two companies I call all-you-can-eat wireless in the United States, Leap Wireless (LEAP, news, msgs)and MetroPCS Communications (PCS, news, msgs), benefited from stuff we've learned overseas" through such companies as America Movil in Latin America and Bharti in India, Ellenbogen says.
Europe and Asia are years ahead of the United States in wireless. In developing countries, "wireless is not a replacement for fixed lines -- it's the only game in town," Ellenbogen notes.
"In the interactive space, our largest holdings are Amazon and Google (GOOG, news, msgs)," Ellenbogen says. "What we look for are Internet companies that are very innovative and invest heavily in research and development. They can grow faster than end markets with a strong financial model, and both of them have done that, not only in the United States but internationally."
The fund also has a position in Korea's leading search engine, NHN.
Traditional media stocks accounted for about 40% of assets at the end of April, when the funds' most recent report was issued. Names included Cablevision Systems (CVC, news, msgs), Walt Disney (DIS, news, msgs), Liberty Media Capital (LCAPB, news, msgs), McGraw-Hill (MHP, news, msgs) and Time Warner (TWX, news, msgs).
Absent were newspaper names like The Washington Post (WPO, news, msgs) and The New York Times (NYT, news, msgs).
The Price fund has nearly a dozen analysts and portfolio managers assigned to it, a critical research advantage because telecom indexes are hard to beat. In the past three years, the typical fund has trailed the Dow Jones U.S. Telecommunications Index by about 2.5 percentage points. The Price fund has beaten it by more than 5 points.
Price Media & Telecommunications also benefits from a thrifty expense ratio of 0.87%. The average telecom fund charges 1.62%, according to Morningstar.
Index investors can buy the index, however, in the form of iShares Dow Jones U.S. Telecom Index Fund (IYZ, news, msgs) and benefit from an expense ratio of only 0.48%. That fund is up 15.1% this year and 41.4% in the past 12 months.
At the time of publication, Timothy Middleton didn't own any securities mentioned in this article.
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