Fidelity MSCI Information Technology Index ETF (FTEC) launched in October 2013 into a crowded market-cap weighted sector fund universe that included diversified products from iShares, SSGA, Vanguard and others. Nonetheless, FTEC’s asset base has climbed to over $1 billion, aided in part to its miniscule 0.08% expense ratio. FTEC’s holdings include AAPL, FB and GOOGL and strong performing mid-sized stocks like CoStar Group (CSGP) and Trimble (TRMB). FTEC earns a top ranking from CFRA due to our holdings-level analysis and for its modest cost factors.
Another lesser known but worthy of consideration tech ETF is SPDR Morgan Stanley Technology ETF (MTK). Relative to S&P 500 based Technology Select Sector SPDR (XLK) (another top ranked tech ETF offered by SSGA), MTK has less securities concentration with its top-10 holdings at 34% of assets, well below the 60% for XLK. MTK’s holdings include Amazon.com (AMZN) and Alibaba (BABA) along with AAPL, FB and GOOGL. The portfolio has a stronger estimated 3-5 year EPS growth than XLK’s, according to Bartolini.
Meanwhile, Fidelity’s Chisholm also believes the industrials sector appears uniquely positioned compared with other global cyclical sectors because the sector has restrained capital spending. As a result, the operating margins and returns on equity of the companies in the sector have been strong and could be a constructive indicator of future performance. She added that the industrials sector generates as much free cash flow as the more defensive consumer staples, and was inexpensive on an historical price-to-free-cash-flow basis.