‘Tis the Season For Tech

10/24/2007 12:00 am EST

Focus:

Tim Middleton, contributor to MSN Money, says that technology stocks usually rack up their best performance in October and November and he has two ways to play the move.

The snap of autumn is in the air, and the season is bringing its usual harvest of apples, pumpkins, and high-technology profits.

This volatile sector is ahead a rousing 19% this year as of Oct. 3, and it's just now entering its strongest season. Technology investors earn average profits of 6.8% in October and a further 6.9% in November, the bulk of the gains for most entire years.

"In the fourth quarter you get the budget flush from enterprises and the consumer holiday spending binge," notes Tara Hedlund, co-manager of Turner New Enterprise Fund  (TBTX).

October is when tech firms alert Wall Street to their last-minute corporate and consumer orders, and this year is shaping up as a very successful one.

Over the winter, the sector usually hibernates. But lately tech, along with other high-growth corners of the market, has been stretching its legs. Over the last five years, the average tech-sector fund has delivered annualized returns of 21.1%, [easily beating] the Standard & Poor's 500.

In the 1990s, technology was an area of the market guaranteed to beat the broad indexes year after year. That bubble burst in 2000, but the group is asserting itself again. Most of us consume more technology today than we did in 1999, from our souped-up cell phones to our slimmed-down laptops and TVs.

Turner New Enterprise has been perfectly aligned with this renaissance. A compact portfolio of around 40 names, Research in Motion is a top holding, as are Apple, Broadcom, Google, and Cisco Systems).

"We think valuations are attractive for the sector," Hedlund says. She says tech companies are growing at a significantly higher rate than the overall market and that competing sectors like finance have taken a drubbing.

Traders are better off in exchange traded funds, which come without mutual fund strings like redemption fees (though, because they trade like stocks, they do involve brokerage commissions).

You can look as hard as you want, but you'll find no better ETF choice than the Cubes. Good old QQQ, with a new name and ticker symbol, is now PowerShares QQQ (NASDAQ: QQQQ). And it is a superb tech proxy, up 20% this year as of Oct. 2 and an average of 20.5% in each of the last five.

PowerShares QQQ has 10% of assets in Apple and another 10% in the next two largest holdings, Microsoft and Qualcomm.

For traders, the advantage of a huge fund like QQQ-with assets of $20.9 billion, it is the third-largest ETF-is that executions are lickety-split and the bid-ask spread is a penny or less.

By excluding older companies that list on the New York Stock Exchange, such as IBM, the Cubes pack more punch. And although the NASDAQ 100 is not a pure tech index-a third of assets are in health care and business and consumer services-it behaves like a tech index, and that's the portfolio role for which it is suited.

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