The Omni Intelligencer

Sell your house faster for more. auction-style-property-sale
  Sunday, July 24, 2016  Home > Money > Finance > Investment > How to Ride the Technology Sector with ETFs
Follow us on Twitter
Every Dollar Helps
Donate using PayPal

How to Ride the Technology Sector with ETFs

| More

Today's stock market is starting to remind me of 1999. Back then, you may recall, the technology sector led the whole market higher. The same thing is happening so far in 2012.

Admittedly, the party didn't end so well back then — and it won't last forever this time, either. Yet I've learned over the years that uptrends can last far longer than most people think.

Now, thanks to ETFs, you have new ways to get quick, broad exposure to the technology sector. Today I'll review some candidates for you.

Technology, Broadly Speaking

Just a few months ago I told you about some new, specialized technology ETFs. Today we will look at the broad-based tech ETFs that try to capture the entire sector.

SPDR Technology Select Sector (XLK) is the largest and oldest technology ETF. It also has the lowest expense ratio at only 0.18 percent.

SPDR knows about technology.
SPDR knows about technology.

The 81 stocks in the XLK portfolio represent the technology and telecommunications components of the S&P 500 Index. That means XLK gives you a bunch of familiar names with high liquidity. It also means XLK doesn't give you any mid-cap or small-cap technology exposure. And the inclusion of telecom stocks means it is not a "pure play" tech ETF.

iShares Dow Jones U.S. Technology Sector Index Fund (IYW) is another big tech ETF. In most ways it is similar to XLK, but there are two big differences ...

First, IYW has a sharply higher expense ratio of 0.47 percent. That might be all right if the fund offered something distinctive, but it really doesn't.

Second, IYW is highly concentrated. Almost 70 percent of the portfolio is in the ten largest holdings. About 20 percent is in Apple (AAPL) alone. IYW is simply tracking an index from Dow Jones, of course, but I like to see more diversification.

Diversification is important in sector ETFs.
Diversification is important in sector ETFs.

Rounding out the top tech ETFs is Vanguard Information Technology ETF (VGT). Like XLK and IYW, this one is also tilted toward large-cap technology names but also has about 25 percent of its assets in mid-cap and small-cap stocks. VGT is pure technology — no telecom — and the expense ratio is only 0.19 percent.

With 413 holdings in its portfolio, VGT is probably the broadest U.S. technology ETF. Even so, more than half of the assets are in the ten largest stocks.

All things considered, I think VGT is currently the best tech ETF. The 25 percent in small- and mid-cap tech stocks is important because they often represent the sector's best growth potential.

XLK, IYW, and VGT are by far the largest technology sector ETFs, but they aren't the only choices. Here are three smaller funds with similar objectives to the "big three."

  • iShares S&P North American Technology Sector Index Fund (IGM)

  • First Trust Technology AlphaDEX Fund (FXL)

  • SPDR Morgan Stanley Technology ETF (MTK)

What about the 
Rest of the World?

The technology ETFs we've looked at so far are all based on U.S. sector indexes. This means they don't give you any exposure to technology stocks from other countries.

In some sectors this would be no big deal, but some important technology players come from Asia and Europe. Even the best U.S. technology ETFs leave out well-known companies like Samsung, SAP, Hitachi, and Toshiba.

Fortunately there is a way to get the global tech sector in one ETF.iShares S&P Global Technology Sector Index Fund (IXN) is still predominantly a U.S. fund (about 77 percent) but also has significant involvement in Japan, South Korea, Taiwan, Germany, and elsewhere.

Technology is a global industry.
Technology is a global industry.

You should always be careful when trading international and global ETFs. Liquidity can be a real problem, which is one of the reasons I track them so closely for my International ETF Trader members. I'm glad to see IXN is improving on this score. The bid-ask spreads and trading volume are generally good.

Will technology ETFs keep going higher as 2012 unfolds? The best I can say right now is that the group has very bullish momentum. No uptrend lasts forever, though.

I'm especially concerned about the degree to which Apple's amazing performance is pushing the whole sector up. We saw a similar pattern in the last tech mania, back then it was Cisco (CSCO).

With ETFs, you don't have to pin all your hopes on one stock. You have more choices than ever. If you're bullish on technology, you can put them to good use.

Sell your house faster for more. auction-style-property-sale
| More

Current Headlines - Finance

  • MIDEAST STOCKS-Gulf bourses soft as oil's fall outweighs Q2 earnings 24 Jul 2016 | 3:44 am

    DUBAI, July 24 (Reuters) - Gulf stock markets were soft in early trade on Sunday as weaker oil prices at the end of last week outweighed a few positive corporate earnings in Saudi Arabia. Riyadh's stock index edged down 0.2 percent in the first hour. Saudi Kayan Petrochemical climbed 2.1 percent after it swung to a net profit in the second quarter of 91.02 million riyals ($24.3 million), ending a run of five straight quarterly losses and beating analysts' forecast for another loss. Alinma Bank rose 0.7 percent after reporting a 12. ...

  • BUZZ-Shares of two Saudi SABIC units diverge after Q2 earnings 24 Jul 2016 | 2:14 am

    July 24 (Reuters) - ** Shares in two Saudi Basic Industries Corp units diverge: Saudi Kayan Petrochemical rises 3.6 percent to 7.25 riyals, Saudi Arabian Fertilizers Co (SAFCO) falls 0.4 percent to 59.25 riyals ** Kayan swung to net profit in second quarter of 91.02 million riyals ($24. ...

  • Burned body found as wildfires menace Calif. 24 Jul 2016 | 2:01 am

    A fast-burning wildfire in the Angeles National Forest, Calif., on July 23. (Ryan Babroff/AP)Detectives investigate the scene of a blaze north of L.A. that prompted the evacuation of 1,500 homes.

  • MIDEAST STOCKS-Saudi Kayan Q2 bullish but oil price weak 24 Jul 2016 | 12:58 am

    DUBAI, July 24 (Reuters) - Saudi Arabia's stock market may be buoyed by strong earnings from a petrochemical company on Sunday but weak oil prices look set to limit gains, while most other Saudi earnings were in line with expectations. Saudi Kayan Petrochemical swung to a net profit in the second quarter, ending a run of five straight losses. It made a net profit of 91.02 million riyals ($24.27 million); the average estimate of three analysts polled by Reuters had been for a quarterly loss of 184.2 million riyals. ...

  • White supremacists energized by Trum 23 Jul 2016 | 11:38 pm

    David Duke (ABC News)Former KKK grand wizard David Duke announces a bid for the Senate and likens his immigration policy to Trump's.

  • Trump: France, others may face 'extreme vetting' 23 Jul 2016 | 11:08 pm

    Donald Trump on July 21 at the GOP convention. (Carolyn Kaster/AP)People from countries hit by terrorism could be prevented from entering the U.S., he says in an interview.

  • Police: Munich shooter had no ISIS link 23 Jul 2016 | 8:49 pm

    Police officers stand guard near the Olympia shopping mall in Munich, where Friday's shooting rampage started. (Karl-Josef Hildenbrand/EFE/EPA)The teenager suspected of killing nine people was obsessed with mass shootings and apparently acted alone, officials say.

  • A beaming Hillary Clinton introduces Tim Kaine 23 Jul 2016 | 2:21 pm

    Democratic presidential candidate Hillary Clinton and Sen. Tim Kaine, D-Va., arrive at a rally at Florida International University. (Andrew Harnik/AP)Sen. Tim Kaine called Hillary Clinton his soulmate on Saturday, in his first appearance as her vice presidential pick.

  • Silicon Valley leads avalanche of quarterly reports 22 Jul 2016 | 10:16 pm

    A Wall Street sign outside the New York Stock ExchangeA quartet of technology heavyweights will be part of an avalanche of quarterly corporate earnings reports next week that, along with a meeting of Federal Reserve policymakers, could hold the key to whether Wall Street extends its record-breaking rally or loses steam. With second-quarter reporting season kicking into high gear, scorecards from Apple , Alphabet , and Facebook will be front and center for investors eyeing the S&P 500's already-stretched valuation following a nearly 9-percent rally since June 27. "These are very widely owned companies by institutional investors and there could be selling if the news is bad," said Tim Ghriskey, chief investment officer of Solaris Group in Bedford Hills, New York.

  • Another creep higher sends S&P 500 to record high, again 22 Jul 2016 | 3:56 pm

    Greg Rowe, left, and Vincent Napolitano, bottom, with Livermore Trading Group, monitor stock prices at the New York Stock Exchange, Friday, July 22, 2016. (AP Photo/Mark Lennihan)NEW YORK (AP) — Another day, another lazy drift higher for stocks and another record high.

The fastest and best way to sell real estate.