S&P Capital IQ Upgrades Tech Sector to Overweight (AAPL, VGT, XLK)
S&P Capital upgraded the technology sector to Overweight from Marketweight, giving the same bullish rating to three technology ETFs along the way. In a recently published research note, S&P Capital IQ said it has Strong Buy or Buy ratings on 50 technology stocks.
The research firm highlighted rising dividends, the swelling cloud-computing business, soaring Internet use in China, and growing markets for mobile devices such as smartphones and tablets as positive catalysts for the technology sector going forward. Technology is the largest sector weight in the S&P 500, accounting for almost 20 percent of the weight of the weight of the SPDR S&P 500 (NYSE: SPY).
"Investors interesting in playing these themes may want to take a view beyond just individual stocks, and take a closer look at some of the ETFs offered to investors," according to the research note. S&P Capital IQ currently has coverage on 44 ETFs that are classified as technology funds, which combined have over $50 billion in assets under management."
S&P Capital IQ gave an Overweight rating to the Technology Select Sector SPDR (NYSE: XLK). The ETF, which features an expense ratio of 0.18 percent and $8.9 billion in assets under management, is arguably most known for its large weight (20.3 percent) in Apple (NASDAQ: AAPL). S&P rates Apple with four-stars.
The research rates another of the ETF's holdings, Dell (NASDAQ: DELL) with four starts as well, while holdings Microsoft (NASDAQ: MSFT) and Broadcom (NASDAQ: BRCM) each garner five-star ratings. With a beta of just over one, the Technology Select Sector SPDR is the least volatile of the ETFs highlighted in the note according to S&P.
The Vanguard Information Technology ETF (NYSE: VGT) also received an Overweight rating from S&P. Home to over 420 stocks, VGT has an expense ratio of 0.19 percent. The ETF's two largest holdings as of May 31 were Apple and Microsoft.
"While VGT has a lower dividend yield than XLK at 0.70%, upon examining the constituent companies, we find that VGT also has a much lower median market cap of $1.3 billion, which we believe is reflective of a truer mix of smaller-cap growth-oriented tech companies," S&P said.
The iShares S&P Global Technology Sector Index Fund (NYSE: IXN) was the last tech ETF examined by S&P in the note. That Overweight-rated offering allocates approximately 26 percent of its weight to Apple and Microsoft. The ETF also features small allocations to Broadcom and Harris (NYSE: HRS), another stock rated four stars by S&P.
About 21 percent of the iShares S&P Global Technology Sector Index Fund weight is devoted to non-U.S. companies. The ETF has almost $591 million in assets under management. Its expense ratio is 0.48 percent.
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