Technology sector exchange traded fund investors will want to monitor Capitol Hill as Congress scrutinizes tax reforms that includes changes to the government’s repatriation policy.
“Investors are likely to know by the end of June whether comprehensive tax reform with repatriation will be approved by Congress by the end of 2015 or early 2016,” according to Evercore ISI analysts. “We continue to think repatriation will be an important part of a comprehensive tax reform bill, and something that both parties want to accomplish, even though specific details are lacking. Estimates vary, but many think U.S. corporations hold roughly $2 trillion overseas.”
The analysts argue that software companies could potential repatriate billions of dollars in cash in 2016 if the repatriation bill passes.
Companies like Microsoft (NasdaqGS: MSFT), Oracle (NasadqGS:ORCL) and other large multi-nationals could utilize the cash influx to augment their respective buyback plans. Additionally, the analysts also believe the cash infusion could allow tech companies to aggressively acquire other firms to build a larger foothold in faster growing segments of the software market, including industries involved with cloud apps, analytics, digital marketing and large data technologies.
If the repatriation bill passes and companies go ahead with additional share repurchases, investors may take a look at broad large-cap tech ETFs, such as the Technology Select Sector SPDR (NYSEArca: XLK), to gain exposure to large multi-nationals. XLK top components include Apple (NasdaqGS: AAPL), Microsoft, Verizon Communications (NYSE: VZ) 4.9%, AT&T (NYSE: T) 4.3% and Facebook (NasdaqGS: FB) 4.1%.