Technology is the largest sector weight in the S&P 500 and the best-performing group in the benchmark U.S. equity index this year. While that has prompted some concerns about stretched valuations, some investors believe technology can keep delivering upside.
The iShares U.S. Technology ETF (NYSEArca: IYW) is one of the bellwether technology exchange traded funds and is higher by more than 24% year-to-date. The iShares U.S. Technology ETF reflects the performance of the Dow Jones U.S. Information Technology Index, which includes all tech sector picks in the Dow Jones U.S. Index. Due to the Dow Jones’ classification of information tech names, healthcare technology stocks may be included while payment technology stocks are excluded.
One of the traits the $3.6 billion IYW is known for is its large weight to Apple Inc. (NASDAQ:AAPL). The iPhone maker accounts for over 17% of IYW’s weight, giving the fund one of the largest exposures among all ETFs.
“Technology has been the best-performing sector globally this year, accounting for roughly half of U.S. and emerging market (EM) Asia equity returns so far,” said BlackRock in a recent note. “Yet investors are torn between optimism on this fast-growing, high-earning sector and skepticism given its meteoric rise and memories of the dot-com bust. Our bias is to the former. We see opportunity in firms that are able to monetize their technology amid structural shifts.”
Technology companies are still sitting on cash hoards that can be deployed in ways to improve value with investors. We are already seeing an increase uptick in company share buybacks and tech firms are now even issuing dividends.
The industry continues to grow through innovation as more shift to cloud, progress into artificial intelligence and adopt internet of all things devices.