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.
“We see robust demand growth for tech products and services as a powerful ballast for the sector,” said BlackRock. “For example, semiconductor makers are well placed to benefit from broad demand as a wide swathe of industries incorporate chips into their products. Mega-cap tech companies geared toward enterprise spending are also benefiting from an uptick in demand.”
Semiconductor demand is also expected to be robust this year.
“Worldwide semiconductor revenue is forecast to total $401.4 billion in 2017, an increase of 16.8 percent from 2016,” according to Gartner, Inc. “This will be the first time semiconductor revenue has surpassed $400 billion. The market reached the $300 billion milestone seven years ago, in 2010, and surpassed $200 billion in 2000.”
For more information on the tech sector, visit our technology category.