Tech ETFs: Down, But Not Out

The iShares U.S. Technology ETF (NYSEARCA: IYW) is among the major technology exchange traded funds that have recently scuffled. While technology, the largest sector weight in the S&P 500, has faltered, some market observers believe the sector can regain its bullish ways.

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.

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.

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“Tech earnings momentum is broad-based, spread across hardware, software and semiconductors—unlike the 1990s, when it was dominated by hardware,” said BlackRock in a recent note. “And technology stock valuations generally appear reasonable relative to other sectors and their own history. U.S. tech, which makes up 70% of the global sector, trades at 17.4 times forward earnings—only a small premium to both its five-year average and the broader market.”

Strong Demand

Tech’s dominant perch in many cap-weighted benchmarks makes the sector vulnerable to market pullbacks and some data points indicate investors are departing the sector to start the second quarter. However, BlackRock views tech as well-positioned to endure near-term bumps.