Three Ways to Play Tech’s Turn

11/12/2007 12:00 am EST


Jim Lowell

Partner & Chief Investment Officer, Adviser Investments

Jim Lowell, editor of the Forbes ETF Advisor, says technology stocks are poised to perform well at this point of the market cycle and recommends three tech ETFs.   

In every market environment some sectors outshine others. In the early parts of the year, cyclical sectors fared well. Energy and gold haven’t lost their Midas touch, yet. But what about here and now?

There are two oars (one for defense and one for offense) that I think stand a reasonable chance of defending and enhancing gains in the near term: consumer staples and technology, which I will focus on.

Why technology? After missing out on the value-driven multiyear bull market, and in an absence of any new operating system and/or consumer- and business-driven demand for premium products, technology names are not only better valued relative to the broader market–they also look relatively attractive in light of the increasing market demand for their new products.

Also, compared to value names, or even financial names, technology names aren’t nearly as interest-rate-sensitive as they are economically sensitive; technology companies grow their bottom lines through better sales not greater debt. (Technology is the least exposed sector in terms of debt; lenders shy away from the risks of lending based on the gleam in an inventor’s eye.)

So, with demand and use increasing, pricing power playing into the hands of some sub-sectors (such as software and networking), now is a perfect time to review the tech exposure in your portfolio and to bring your stake (if you’re a growth investor) to at least a market weighting.

That’s not going to mean buying a 10% stake in tech—since tech is well represented in the larger-cap exchange traded funds, but it may mean adding a 3% tranche. The question is, with so many tech ETFs to choose from, which one will suit you best? Let’s take a look.

iShares Dow Jones US Technology Sector (NYSE: IYW) seeks investment results that  correspond to the price and yield performance of the Dow Jones US Technology index. Its top ten holdings are Microsoft, Cisco, Intel, IBM, Apple, Google, HP, Oracle, Qualcomm, and Dell. We know from this quarter’s earnings reporting that even companies like are increasingly dependent on strong overseas sales, so the US in the title doesn’t mean US-only in terms of returns.

iShares Standard & Poor’s Global Info Technology (NYSE: IXN) seeks investment results that correspond to the price and yield performance of the S&P Global Information Technology Sector index. The top ten holdings are Microsoft, Cisco Systems, Intel, IBM, Apple, Google, Nokia, Hewlett-Packard, Oracle, and Samsung Electronics.

Vanguard Information Technology ETF (AMEX: VGT), [which follows] the MSCI US Investable Market Information Technology Index (whose top ten holdings are Microsoft, Cisco Systems, IBM, Intel, Apple, Google, Hewlett-Packard, Oracle, Qualcomm, and Dell) offers a different index’s approach to a diversified basket of names.

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