No April Fooling Around With This Tech ETF

The technology sector, the largest sector allocation in the S&P 500, is asserting itself as a leadership group this year. Just look at the Vanguard Information Technology ETF VGT, which is up 11.6 percent year-to-date, more than double the 5.7 percent returned by the S&P 500.

Technology ETFs

The $12.3 billion VGT holds 360 stocks, giving it a bigger roster than some competing technology exchange traded funds. Still, this Vanguard ETF, like many of its cap-weighted rivals is dominated by the technology sector's largest, most familiar names.

For example, VGT is a credible avenue for investors looking for exposure to Apple Inc. AAPL as the iPhone maker is VGT's largest holding with a weight of 14.2 percent as of the end of February. Google parent Alphabet Inc. GOOG GOOGL and Microsoft Corporation MSFT combine for 19 percent of VGT's weight. At the end of February, the ETF's top 10 holdings combined for just over 57 percent of its weight.

VGT merits consideration with first-quarter earnings season fast-approaching.

The Case For VGT

“Heading into the first quarter 2017 earnings season, the S&P 500 information technology sector is expected to expand to 16.5 percent according to S&P Capital IQ consensus estimates, representing the highest growth in the index after energy and ahead of the S&P 500's 9.9 percent,” said CFRA Research in a note out Monday. “While, energy is projected to bounce back from a prior loss, technology is likely to be a top three growth leader for the S&P 500 index for the third quarter in a row, according to Lindsey Bell, an investment strategist at CFRA Research.”

Energy and financial services are frequently mentioned as credible value destinations, but not many other sectors are considered inexpensive. Even fewer trade at noticeable discounts to long-term averages. So, it might come as a surprise to some that technology, the largest sector weight in the S&P 500, is considered a value play.

The technology sector is forecast to trade at about 18 times this year's earnings, which is inline with the earnings expectations for the S&P 500.

“Bell highlights that the semiconductors and semiconductor equipment industry is likely to be the driver in the first quarter, with a 39 percent projected growth rate. Other industries expected to experience double-digit growth for the quarter include Internet Software & Services (29 percent) and software (11.1 percent),” said CFRA.

VGT allocates 13.3 percent of its weight semiconductor stocks, its fourth-largest industry weight. CFRA rates VGT Overweight.

Best Sector ETFs For April: No Fooling Around