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5 Tech ETFs to Watch on Strong Earnings

We are now at the final leg of the third-quarter earnings season and find the tech sector ushered in sweet surprises as the winner amid broad-based mediocrity. The sector's Q3 numbers not only bettered pre-season expectations, but also outperformed the sector's performance in prior quarters.

Even from an ex- Apple ( AAPL ) angle, results appeared stellar for the tech space. While Apple beat on earnings and revenues driven by surging sales in China and provided an upbeat outlook for the holiday quarter, other sector behemoths like Google's parent Alphabet ( GOOGL ), Microsoft ( MSFT ), Amazon ( AMZN ) and LinkedIn ( LNKD ) came up with sturdy numbers (read: 4 Tech ETFs Look Rosy on Apple Earnings Beat ).

So far this season, about 76.8% of the tech sector's market cap in the S&P 500 index reported results. Of this, total earnings for the sector were up 8.9% on 5.5% revenue growth. As much as 66.7% companies surpassed EPS estimates while 56.4% came ahead of revenue estimates, as per Zacks Earnings Trends . However, investors should note that Zacks classified Technology sector takes telecom players like AT&T and Verizon into consideration.

Within the broader sector, 80% of computer software services and 75% telecom equipment delivered an earnings beat while 60% and 50% of these segments surpassed on revenues. All of telecommunication services companies beat earnings estimates. Strong earnings growth was noticed in computer-office equipment (up 15.2%), telecom services (up 24.5%) and computer software (up 6.4%) while these areas saw revenue growth of 7.7%, 11.9% and negative 0.8%, respectively.

Below we highlight five tech ETFs that came returned smartly in the last one month, i.e., at the pinnacle of the earnings season, and thus reflect the true image of the surging tech space.

PowerShares NASDAQ Internet ETF (PNQI)

This fund follows the Nasdaq Internet Index, giving investors exposure to the broad Internet industry. The fund holds about 94 stocks in its basket with AUM of $223.2 million while charging 60 bps in fees per year. It trades in light volume of around 20,000 shares a day (read: eBay Q3 Earnings Strength Give These ETFs a Boost ).

The ETF is concentrated on the top four firms with around 8.9% share each while other firms hold no more than 6.89% of assets. In terms of industrial exposure, Internet software and services makes up for 56.4% share in the basket, followed by Internet retail (38.3%). It gained over 14% in the last one month (as of October 30, 2015). The fund has a Zacks ETF Rank #2 (Buy) with a High risk outlook.

iShares North American Tech ETF (IGM)

This technology ETF provides exposure to North American electronics, computer software and hardware, and informational technology companies in a basket of 275 stocks. The fund charges 48 bps in fees.

IGM includes some of the biggest tech players such as Microsoft (9.43%), Apple (8.27%) and Amazon (5.31%). Sector-wise, Internet Software & Services, Systems Software and Technology hardware take the top three spots (see all Technology ETFs here ).

Also, IGM manages an asset base of $890 million and gained 11.3% in the last one month. The fund has a Zacks ETF Rank #2 (Buy) with a Medium risk outlook.

First Trust Dow Jones Internet Index (FDN)

This is one of the most popular and liquid ETFs in the broad tech space with AUM of over $4 billion and average daily volume of more than 550,000 shares. The fund tracks the Dow Jones Internet Index and charges 54 bps in fees per year (read: Amazing Q3 at Amazon: ETFs to Benefit ).

In total, the fund holds 41 stocks in its basket. Amazon (11.14%), Alphabet (10.43%) and Facebook (10.37%) are pillars of the fund. From a sector look, information technology accounts for about 70.1% of the portfolio while consumer discretionary makes up over 22%. This Zacks Rank #2 (Buy) ETF has returned 12.6% (read: 5 ETFs Up At Least 10% This Year ).

SPDR S&P Semiconductor ETF (XSD)

This fund tracks the S&P Semiconductor Select Industry Index, holding 48 stocks in its portfolio. It is widely spread across each security as none of these allocates more than 3.92% of the assets. The product has a definite tilt toward small cap stocks at 54%, followed by 28% in mid caps and 18% in large caps (read: Semiconductor ETFs Surge on Impressive Q3 Earnings ).

However, the fund is less popular and illiquid with AUM of $144.6 million and average daily volume of under 180,000 shares. It charges 35 bps in fees per year. The fund has a Zacks ETF Rank #3 and was up 12.7% in the last one month.

PureFundsISE Cyber Security ETF ( HACK )

HACK offers global exposure to those companies that ensure safety to computer hardware, software and networks, and fight against any sort of cyber malpractice. It tracks the ISE Cyber Security Index, holding 35 securities in its basket.

It is well spread out across components, as each security holds no more than roughly 4.5% of total assets. From an industrial view, systems software accounts for more than half of the portfolio while communications equipment and Internet software & services round off the top three.

In terms of country exposure, U.S. firms take the top spot in the fund at 70.7%, while Israel and Japan take the next two spots with 16.2% and 3.9% shares, respectively. The fund has amassed $1.1 billion in AUM and charges a hefty 75 bps in fees per year from investors. Volume is solid as it exchanges 650,000 shares in hand per day. HACK was up 6.1% in the past one month (as of October 30, 2015) (read: Cybersecurity Threats from China Persist: ETFs in Focus ).

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PWRSH-ND INTRNT (PNQI): ETF Research Reports

FT-DJ INTRNT IX (FDN): ETF Research Reports

PURFDS-ISE CYBR (HACK): ETF Research Reports

SPDR-SP SEMICON (XSD): ETF Research Reports

ISHARS-NA TECH (IGM): ETF Research Reports

APPLE INC (AAPL): Free Stock Analysis Report

MICROSOFT CORP (MSFT): Free Stock Analysis Report

ALPHABET INC-A (GOOGL): Free Stock Analysis Report

LINKEDIN CORP-A (LNKD): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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