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.|
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.|
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.|
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.
|< Prev||Next >|
Current Headlines - Finance
UK's four major banks face further £19bn in litigation charges, S&P reveals
The UK's four largest banks have paid £42bn in litigation charges in the five years leading up to 2014, according to S&P.
VW investors hope Piech exit may usher in change
Investors hope that Volkswagen will be able to revive profitability at its core division, cure underperformance overseas and bury lingering plans for acquisitions after the resignation of Chairman Ferdinand Piech. Piech, the mastermind of VW's global expansion and a towering figure at the German group for more than two decades, stepped down on Saturday after losing a showdown he had provoked with Chief Executive Martin Winterkorn. Almost 80 percent of VW investors expect the carmaker's stock market value to increase after Piech's departure as it may help unlock greater earnings potential at the 12-brand group, a survey by advisory firm Evercore ISI showed. The exit of Piech, who spearheaded VW's campaign to make everything from motorcycles to 40-tonne trucks, also curbs the risk of purchases while VW is cutting billions of euros of costs at its core brand and revamping operations, Evercore ISI said.
Wall Street to open up ahead of Apple earnings, Fed meeting later this week
Investors this week will also be closely watching the results of the two-day U.S. Federal Reserve meeting, starting Tuesday, for clues on when interest rates could be hiked. "So far, both the economic data and earnings data has been weaker-than-expected and so that means that an imminent rate hike is most likely off the table," said Adam Sarhan, chief executive of Sarhan Capital in New York. The S&P 500 closed at a record high of 2,117.69 points, just above its previous high of 2,117.39 set on March 2. Apple shares rose 1.63 percent to $132.43 in premarket trading.
Thousands expected at Monday's funeral for Freddie Gray
Quake-aid need acute in Nepal capital, more so in villages
Defense to begin arguments to spare Boston bomber's life
By Scott Malone BOSTON (Reuters) - Defense lawyers will begin to present their case Monday that a jury should sentence convicted Boston Marathon bomber Dzokhar Tsarnaev to life in prison rather than death, as the trial enters a new and critical stage. Tsarnaev, a 21-year-old ethnic Chechen, was found guilty early this month of killing three people and injuring 264 in one of the highest-profile attacks on U.S. soil since Sept. 11, 2001, as well as fatally shooting a police officer. Defense lawyers have countered that Tsarnaev, 19 at the time of the attack, was adrift and following the lead of his 26-year-old brother, Tamerlan, who died after a gunfight with police four days after the bombing. A Boston Globe survey released Monday found that just 19 percent of Massachusetts residents support the idea of putting Tsarnaev to death, fewer than the 30 percent who support the death penalty for "heinous" crimes.
Investors question Deutsche Bank's overhaul
Deutsche Bank's (DBKGn.DE) biggest strategic overhaul under co-chief executives Anshu Jain and Juergen Fitschen got a thumbs down from investors on Monday who judged it too little too late. Germany's flagship lender has trailed rivals under the tenure of Jain and Fitschen who despite the reverberations from the financial crisis stuck to an expensive universal banking model offering everything from mortgages in Germany to derivatives in London. Faced with tough regulations, weak markets and mounting legal bills from misconduct settlements, Deutsche is now following rivals such as UBS (UBSN.VX) and Barclays (BARC.L) in axing unprofitable business lines to boost earnings and shore up its balance sheet. After four months of deliberations, Jain and Fitschen have decided to cut up to 150 billion euros in investment bank assets, sell their Postbank (DPBGn.DE) retail division via a stock market listing by the end of 2016 and invest more in equities trading and wealth management.
Major Asian markets largely higher after Wall Street hits record
Lynch inherits civil rights probes from Holder as U.S. attorney general
By Richard Cowan WASHINGTON (Reuters) - A string of deadly confrontations between mostly white police and black men will be among challenges immediately facing Loretta Lynch when she is sworn in on Monday as U.S. attorney general. Lynch, 55, takes over as the country's top law enforcement official after a weekend that saw thousands of people in Baltimore, Maryland, take to the streets in mostly peaceful protests over the latest such case. Building on her career as an accomplished federal prosecutor, Lynch takes over from retiring Attorney General Eric Holder, who served more than six turbulent years at the head of the Justice Department. Besides the death of Freddie Gray in Baltimore, other questionable encounters between police and black males in recent months have led to unrest in South Carolina, Missouri, Ohio and New York.
Justice Ginsburg has already made up her mind on gay marriage
Ruth Bader Ginsburg, the 82-year-old leader of the Supreme Court’s minority liberal wing, has cast aside her usual restraint in the past months and left little doubt where she stands on the upcoming gay marriage case.