Considering the lower economic growth rates in the U.S., stock exchange traded funds that hold companies with overseas exposure, such as the technology sector, will be in the best position to grow in the coming years, according to iShares analysts.
While the U.S. will eke out growth of about 2% over the next couple of years, the economy will still be susceptible to short-term risks, like the so-called fiscal cliff.
Moreover, the U.S. still has to tackle a stubbornly high underemployment rate, an aging workforce, an elevated and growing national debt, and lackluster productivity. [iShares: Mega-Cap ETFs for a Low-Growth Environment]
“Investors should build portfolios that are robust to a prolonged period of slow growth,” Russ Koesterich, Managing Director, iShares Chief Investment Strategist, said in a research note. “Technology is another potential long term play as it has the highest percentage of international sales of any sector, and is therefore the least exposed to a regime of slow growth in the United States.”
The technology sector, among the ten economic sectors, has the most exposure to international sales, with 60.4% of computer hardware and 84.4% of semiconductor sales in overseas markets.
U.S. tech sector ETFs include:
- Technology Select Sector SPDR Fund (NYSEArca: XLK)
- Vanguard Information Technology Index Fund (NYSEArca: VGT)
- iShares Dow Jones US Technology Sector Index Fund (NYSEArca: IYW)
International tech sector ETFs include:
- SPDR S&P International Technology Sector ETF (NYSEArca: IPK): Top country allocations include Japan 34.3%, South Korea 26.0%, Germany 10.6%, U.K. 5.5% and France 4.6%.
- iShares S&P Global Technology Sector Index Fund (NYSEArca: IXN): Top country allocations include U.S. 77.6%, Japan 6.6%, South Korea 4.8%, Taiwan 3.9% and Germany 2.5%.
- iShares MSCI ACWI ex US Information Technology Sector Index Fund (NYSEArca: AXIT): Top country allocations include Japan 25.9%, Taiwan 19.8%, South Korea 17.1%, Germany 8.3% and China 5.6%.
For more information on the tech sector, visit our technology category.
Max Chen contributed to this article.