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.
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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.