The iShares U.S. Technology ETF (NYSEArca: IYW) is one of the bellwether technology exchange traded funds and is higher by about 11% year-to-date. Some market observers believe technology, the largest sector weight in the S&P 500, can continue surging this year.
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.
“This reporting season, 88% of IT companies in the S&P 500 Index posted positive earnings surprises—the highest proportion of all the sectors—while recording 22.5% aggregate year-on-year earnings growth compared to the broad Index’s 14.3% (Source: BlackRock, Bloomberg, as of 3/5/2018),” said BlackRock. “This has translated into strong equity market performance year-to-date. Notably, the other high-flying sector—consumer discretionary—also includes two tech-powered giants: Amazon and Netflix.”
The $4.43 billion IYW devotes 16.2% of its weight to shares of Apple. IYW allocates a combined 20/6% of its weight to Microsoft Corp. (NASDAQ:MSFT) and Facebook Inc. (NASDAQ:FB) with another 12% devoted to Google parent Alphabet Inc. (NASDAQ:GOOG).
After surging 37% last year, technology remains a favorite among investors, despite data suggesting technology stocks are relatively expensive as they trade at elevated price-to-earnings compared to the broader S&P 500. Roughly a third of global fund managers say they are overweight tech in their portfolios, according to a recent Bank of America Merrill Lynch survey.
The robust cash positions at many technology companies is another favorable trait for investors to consider.
“This offers a number of potential advantages. First, these companies potentially are insulated from the impact of rising interest rates, and may even benefit. As we recently noted, technology historically has been among the sectors the most insulated from yield curve shifts,” said BlackRock. “In addition, one of the consequences of the recent tax legislation is the prospect of companies repatriating cash back to the U.S. at favorable rates. This increases the potential for dividends, share buybacks or increased mergers and acquisition activity.”
IYW includes companies from technology hardware, storage, and peripherals; software; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components.
For more information on the tech sector, visit our technology category.
Tom Lydon’s clients own shares of Apple, Facebook and Microsoft.