S&P Bullish on a Trio of Tech ETFs
It may be the largest sector weight in the S&P 500, but year-to-date, technology has offered something of a middling performance.
Using the nine sector SPDR ETFs as the benchmarks, investors will find that the Technology Select Sector SPDR (NYSE: XLK), though up nearly 10 percent this year, is the second-worst performer of that group.
Only the Materials Select Sector SPDR (NYSE: XLB) is keeping XLK from the bottom spot.
Part of the reason for that tepid performance was slack first-half earnings growth, but that could change in the latter half of this year. Combine that with an improving dividend story for the sector and now might be the time for investors to consider select tech ETFs.
In a new research note, S&P Capital IQ highlights three technology ETFs it is bullish on. The research firm said of 44 technology ETFs in its coverage universe, only six receive Overweight ratings.
"Capital IQ data indicate flat operating EPS in the first quarter and consensus estimates indicate a decline for the second quarter, but a notable improvement in the second half, with expected growth of 7% for the third quarter and 10% for the fourth quarter, owing in part to easier comparisons," said the research firm in the note.
One of the ETFs S&P Capital IQ has an Overweight rating on is the iShares U.S. Technology ETF (NYSE: IYW), a fund that previously rose to acclaim then infamy for its large weight to Apple (NASDAQ: AAPL).
IYW, which is up nearly eight percent year-to-date, still features features one of the largest ETF weights to Apple at nearly 16 percent. The fund's other top-10 holdings include International Business Machines (NYSE: IBM), Cisco (NASDAQ: CSCO), Intel (NASDAQ: INTC), Oracle (NASDAQ: ORCL), EMC (NYSE: EMC) and Qualcomm (NASDAQ: QCOM). Including Apple, those stocks combine for over 44 percent of IYW's weight.
S&P Capital IQ has five-star ratings on Apple, EMC and Qualcomm and four-star ratings on Cisco, IBM, EMC and Intel.
The firm also has an Overweight rating on the $588.1 million iShares North American Tech ETF (NYSE: IGM), which has impressed with a 13.1 percent gain this year. IGM is focused explicitly on North American-based tech names, but there is plenty of duplication of between this fund and IYW.
IGM's top-10 holdings include Apple, IBM, Cisco, Oracle, Intel and Qualcomm, but those stocks combine for less than 30 percent of the ETF's weight. Texas Instruments (NASDAQ: TXN) and Microsemi (NASDAQ: MSCC), which S&P also has four-star ratings on, are smaller members of IGM's lineup. IGM's three-year standard deviation of 16.82 percent is slightly below the 17.35 percent found on IYW, according to iShares data.
S&P Capital IQ also has an Overweight rating on the Vanguard Information Technology ETF (NYSE: VGT), one of the largest and least expensive tech ETFs on the market. With an expense ratio of just 0.14 percent per year, VGT is cheaper than 91 percent of comparable funds, according to Vanguard.
VGT's top-10 lineup is similar to the other funds highlighted here with Apple, IBM, Oracle, Qualcomm, Cisco and Intel (in that order) found in that group. Apple was VGT's largest holding at the end of the first quarter with a weight of 13.6 percent. Those stocks combine for 35.1 percent of VGT's weight.
VGT is competes directly with XLK as well and year-to-date, the Vanguard offering is slightly ahead with returns of 10.4 percent.
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