Technology sector clearly has long-term growth prospects for
investors. This is especially so for those willing to remain
invested as the sector should continue to outperform the market
over time. (See:
The Cloud Computing ETF (SKYY)
It is also true that many view the sector with skepticism since
the tech bubble burst more than a decade ago. However, times have
clearly changed for the better. Valuations are now based on
stronger fundamentals and careful selection of investments has
yielded good long term returns for many funds. The Technology
sector has a PEG ratio of 0.70, the lowest among the ten broad
sectors that comprise the S&P 500, per Capital IQ.
Technology ETFs reduce any inherent volatility by careful
selection of securities to create widely diversified portfolios.
The start of fiscal 2012 has been more than good for technology
sector ETFs, partly driven by Apple's (
) excellent growth which enhanced the returns of the funds which
have high allocation to the technology giant.
Our top recommendation for the investors with low risk
tolerance, seeking exposure to broad technology sector is Vanguard
Information Technology ETF (
), which is Zacks Rank # 1 (Strong Buy) ETF. We expect it to
outperform its peers with similar (low) level of risk.
About Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the
context of our outlook for the underlying industry, sector, style
box, or asset class. Our proprietary methodology also takes into
account the risk preferences of the investors. The aim of our
models is to select the best ETFs within each risk category. We
assign each ETF one of five ranks within each risk bucket. Thus,
Zacks Rank reflects the expected return of an ETF relative to other
ETFs with similar level of risk.
Vanguard Information Technology ETF (
VGT tracks the performance of the MSCI US Investable Market
Information Technology 25/50 Index which holds a total of 415
It includes stocks of companies that serve the electronics and
computer industries or that manufacture products based on the
latest applied science.
The fund manages a $2.5 billion asset base and provides exposure
to a large basket of 416 technology stocks. The fund also offers
liquidity as it trades with an average (3 months) volume of 180,000
Guide to the 25 Most Liquid ETFs
) Although small allocations have also been made to mid caps and
small caps, VGT appears to be tilted towards large caps. (
Mid Cap ETF Investing 101
Despite broad exposure to technology stocks, VGT appears to be
concentrated among its individual holdings, as its top 10 holdings
make up more than 59% of the total assets allocated. This suggests
that company-specific risk is pretty high in the case of VGT and
the top 10 holdings dominate the returns of the fund.
The highest fund allocation goes to Apple, with 19.1% of asset
invested, which implies that the performance of the fund is
somewhat dependent on Apple's performance. (
Three Great Tech ETFs That Avoid Apple
This is followed by Microsoft (
) and International Business Machines Corp (
) with asset investment of 8.1% and 7.5%, respectively. This tech
ETF charges an expense ratio of 19 basis points on an annual basis
and has a yield of 0.71%.
With this focus, the fund has a reasonable P/E ratio at 15.5
which can be considered an attractive level from the technology
sector perspective. The fund's P/B stands at 3.1, a decent level
considering that the fund has a long-term earnings growth rate of
26.9% a year.
This technology sector Vanguard fund has been able to put up a
return of 10.06% over a period of one year (as of July 31, 2012). A
look at the year-to-date performance suggests that fund has
performed quite well gaining 18.67%. (
Three Technology ETFs Outperforming XLK
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VIPERS-INFO TEC (VGT): ETF Research Reports
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