By Todd Rosenbluth, CFRA
The CFRA Focus ETF for April is Vanguard Information Technology Index Fund (VGT), which earns our top ranking. CFRA ranks approximately 1,000 equity ETFs based on a combination of holdings-level analysis with ETF-level attributes.
Heading into the first quarter 2017 earnings season, the S&P 500 information technology sector is expected to expand to 16.5% according to S&P Capital IQ consensus estimates, representing the highest growth in the index after energy and ahead of the S&P 500’s 9.9%. While, energy is projected to bounce back from a prior loss, technology is likely to be a top three growth leader for the S&P 500 index for the third quarter in a row, according to Lindsey Bell, an investment strategist at CFRA Research.
Bell highlights that the semiconductors and semiconductor equipment industry is likely to be the driver in the first quarter, with a 39% projected growth rate. Other industries expected to experience double-digit growth for the quarter include Internet Software & Services (29%) and software (11.1%).
While VGT has 361 holdings, including some small- and mid-caps not in the S&P 500 index, the MSCI index-based ETF is market-cap weighted and has 55% of assets invested in its ten largest holdings; S&P small- and mid-cap technology companies are projected on average to grow earnings faster than the S&P 600 and S&P 400, respectively.
CFRA strong-buy recommended Apple (AAPL) and Alphabet (GOOGL) comprise 14% and 5% of assets, respectively.
According to CFRA equity analyst Angelo Zino, the strong buy opinion on Apple primarily reflects AAPL’s compelling valuation, superior ecosystem, high customer retention rates, and robust free cash flow generation/cash position.
Meanwhile, CFRA buy recommendations Facebook (FB), Intel (INTC) and Oracle (ORCL) are also top-10 holdings. In addition to holdings analysis, CFRA views VGT as having favorably low costs factors.