iShares Dow Jones US Telecom (ETF) (AMEX:IYZ)

Driven by the recent consolidations, the telecom sector is poised for an interesting year. As operators are embedded with technologies in third-generation (3G) wireless and voice over the internet protocol (VoIP) to integrate the vast array of telecommunications services in new ways, adding to end-user value perception, a positive operating environment for the telecom players is on the roll.

To encash the same, iShares Dow Jones US Telecom fund (IYZ), tracks a subset of the Dow Jones U.S. Total Market Index that includes the telecom service provider stocks in that broad market benchmark. The fund's tally is extremely concentrated, with most of its assets in its top holdings, including American Telephone and Telegraph Co. and Verizon communications.

The fund is coming off a year of very strong performance, posting 32% returns as of December 2006. As telecom industry is expected to grow at a rate over 10% in 2007, the fund has got enough opportunities to nurture. With wireless penetration projected to reach 88% by 2009, translating into 270 million subscribers, the fund envisages the similar performance in 2007 as well.

IYZ got cheaper in 2006, with expense ratio dropping from 0.60% to 0.48%. That is a big improvement and extends this ETF's low-cost advantage over the vast majority of its peers, with only Vanguard Telecom Services ETF VOX charging the minimal.

Though, the fund seems to be quite volatile due to its narrow focus on one industry, its low cost structure, tax efficiency and broad diversification within the sector, should help IYZ to influence the investors positively.