The summer months are known for lethargy and, sometimes declines, on Wall Street, but July is usually a decent month for stocks. Over the past 20 years, the S&P 500 has traded higher in 45% of Julys, posting an average gain of 0.4%.
Investors looking for bigger July gains should look to the technology sector, the S&P 500’s largest sector weight. According to Equity Clock, the technology sector has risen in 55% of the past 20 Julys and over those two decades, tech stocks have notched an average July gain of 1.5%.
With that it would appear S&P Capital IQ has made a prescient call by bestowing ETF of the month honors on the Vanguard Information Technology ETF (NYSEArca: VGT). Home to $7.6 billion in assets under management as of the end of May, VGT charges just 0.12% per year, placing it in a tie with the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) for the title of least expensive tech sector ETF. [Time for Some Tech With a Popular ETF]
“While S&P Capital IQ consensus forecasts for second quarter 2015 EPS declined sharply since the beginning of 2015, we think that the information technology sector should be one of the bright spots. On January 2, analysts expected second quarter 2015 S&P 500 earnings would increase 4.2% from the prior year. However, driven in part by weakness in the energy and consumer staples sectors, the S&P 500 forecast is now for a 4.4% decrease as of June 25. While forecasts for the tech sector have fallen as well, analysts now project 2.1% growth. For all of 2015, consensus forecasts call for 4.4% growth, ahead of the S&P 500’s 0.3% gain. However, the S&P 500 Tech sector trades at a 2015 P/E of 16.8X, below that of the S&P 500’s 17.7 multiple,” said S&P Capital IQ in a research note.
VGT has slumped more than 4% over the past month, but the ETF is still higher by 1.7% year-to-date. As is the case with its other cap-weighted rivals, VGT’s fortunes are largely determined by Apple (NasdaqGS: AAPL). The iPhone maker accounted for 16.8% of VGT’s weight at the end of May, more than double the 8.1% allocated to Microsoft (NasdaqGS: MSFT). [ETFs With big Apple Weights]
“Angelo Zino, an equity analyst at S&P Capital IQ, believes there are number of catalysts that should support sector growth. Within hardware and storage, he expects double-digit smartphone growth in 2015 and 2016 to be augmented by tripling in wearables, albeit off a smaller base. He adds that data centers usage for cloud adoption is providing robust growth prospects to offset traditional storage. While Apple, VGT’s largest position, is an S&P Capital IQ Hold recommended stock, it is undervalued based on a S&P Capital IQ Fair Value. In addition, the company has a high-investment-grade Standard and Poor’s Credit Rating,” according to the research firm.
VGT devotes 21.2% of its weight to technology hardware and storage providers with another 16.4% allocated to Internet software and services firms. Software makers and semiconductor manufacturers account for 13.5% and 11.6% of the ETF, respectively.
Other top 10 holdings in the ETF include Facebook (NasdaqGS: FB), Intel (NasdaqGS: INTC) and Cisco Systems (NasdaqGS: CSCO).
Vanguard Information Technology ETF
Tom Lydon’s clients own shares of Apple.