The Omni Intelligencer

Sell your house faster for more. auction-style-property-sale
  Wednesday, May 25, 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

  • Asia stocks surge on global rally as oil rebounds 25 May 2016 | 4:10 am

    Energy stocks soared in Hong Kong and Sydney as oil prices rebounded, while in Tokyo exporters were lifted by a weaker yenAsian stocks jumped Wednesday after a strong lead from Wall Street and Europe, and as investors adjusted to the prospect of a US rate rise in the near future. Energy stocks soared in Hong Kong and Sydney as oil prices rebounded, while in Tokyo exporters were lifted by a weaker yen which is a plus for their profitability. The gains in Asia followed a jump in European markets Tuesday as Brexit fears eased after opinion polls suggested Britain would vote to remain in the European Union next month.

  • South Africa's Lewis Group says slowing economy hits earnings 25 May 2016 | 4:08 am

    South African furniture retailer Lewis Group said its full-year profit fell 26.5 percent as its lower-to-middle income customers continued to face a tough economic climate in Africa's most advanced economy. Headline EPS is the main profit gauge in South Africa that strips out certain one-off items. The company also had to pay 67.1 million rand ($4.30 million) to customers it had mistakenly sold loan insurance to last year following an investigation by South Africa's credit regulator.

  • Mediclinic reports rise in FY underlying earnings 25 May 2016 | 4:03 am

    A woman and a child look on outside a hospital where former South African President Nelson Mandela is being treated in Pretoria(Reuters) - South Africa's biggest private hospital group, Mediclinic International, reported a 3 percent rise in underlying full-year profit on Wednesday in its first results after taking over London-listed Al Noor Hospitals Group. Mediclinic has expanded outside South Africa with acquisitions, taking stakes in Britain's Spire Healthcare and Switzerland's Hirslanden and completing a reverse takeover of Al Noor in February in order to list in London. Mediclinic said the combined group's revenue rose 7 percent to 2.1 billion pounds ($3.07 billion) and operating profit was down 17 percent on the comparative number in 2015.

  • Afghan Taliban appoint new leader after Mansour's death 25 May 2016 | 3:54 am

    In this undated and unknown location photo, the new leader of Taliban fighters, Mullah Haibatullah Akhundzada poses for a portrait. The Afghan Taliban confirmed on Wednesday that their leader Mullah Akhtar Mansour was killed in a U.S. drone strike last week and that they have appointed a successor - a scholar known for extremist views who is unlikely to back a peace process with Kabul. (Afghan Islamic Press via AP)KABUL, Afghanistan (AP) — The Afghan Taliban confirmed on Wednesday that their leader Mullah Akhtar Mansour was killed in a U.S. drone strike last week and that they have appointed a successor — a scholar known for extremist views who is unlikely to back a peace process with Kabul.

  • China's Peak Sport says may be taken private, shares soar 25 May 2016 | 3:47 am

    * Peak Sport shares jump as much as 20 pct on take-privateplans * Company joins Wanda Commercial, others seeking HKdelisting (Adds details on Peak Sport, other take-private plans in HongKong) HONG KONG, May 25 (Reuters) - Chinese sportswear maker PeakSport Products, which has several U.S. basketballsponsorship and endorsement deals, said it may be taken privateand delist from Hong Kong, joining a growing queue of mainlandfirms looking to exit the city's stock market. ...

  • Mitsubishi Motors restates earnings due to special loss from mileage scandal 25 May 2016 | 1:27 am

    A man walks in front of an entrance of Mitsubishi Motors Corp's headquarters in Tokyo, JapanMitsubishi Motors Corp on Wednesday restated its financial results for the past business year to reflect a special loss of 19.1 billion yen ($173.73 million) related to its manipulation of fuel economy data. Japan's sixth-largest automaker said net profit fell 39 percent to 72.6 billion yen in the year that ended in March. It had previously reported a net profit of 89 billion yen at the end of April.

  • Protests turn violent outside Trump rally in New Mexico 25 May 2016 | 12:59 am

    A protestor of Republican presidential candidate Donald Trump holds a burning T-shirt as hundreds of people protest outside a rally for Trump in Albuquerque, Tuesday, May 24, 2016. (AP Photo/Russell Contreras)ALBUQUERQUE, N.M. (AP) — Protests outside a Donald Trump rally in New Mexico turned violent Tuesday night as demonstrators threw burning T-shirts, plastic bottles and other items at police officers, overturned trash cans and knocked down barricades.

  • At unruly N.M. rally, Trump goes after GOP Gov. Martinez 24 May 2016 | 11:10 pm

    At unruly N.M. rally, Trump goes after GOP Gov. MartinezAt a raucous rally in Albuquerque featuring tumultuous protests both inside and out, Donald Trump hurled invective at opponents Democrat and Republican alike.

  • Trump, Clinton win Washington state's presidential primaries 24 May 2016 | 10:53 pm

    Republican presidential candidate Donald Trump speaks at a campaign event in Albuquerque, N.M., Tuesday, May 24, 2016. (AP Photo/Brennan Linsley)WASHINGTON (AP) — Democratic front-runner Hillary Clinton and presumptive Republican nominee Donald Trump each won primaries in Washington state Tuesday.

  • Trump moneyman’s shady history 24 May 2016 | 9:13 pm

    Trump moneyman’s shady historyOne of six vice-chairs of the “Trump Victory Leadership Team,” a joint fundraising effort announced Tuesday by the Trump campaign and the Republican National Committee, pleaded guilty in 2009 to criminal charges involving bribes paid to top New York State officials. Elliott Broidy, a Los Angeles venture capitalist, was charged with showering nearly $1 million in gifts and favors on state officials as part of a scheme to win more than $250 million in state pension investments for the venture capital firm he then headed, Markstone Capital. Sean Spicer, the RNC’s communications director, dismissed questions about Broidy’s background, comparing it to that of New York investment figure Steve Rattner, a top Democratic moneyman who held a recent fundraiser for Hillary Clinton and was caught up in the same “pay for play” scandal.

The fastest and best way to sell real estate.