Tech ETFs Roaring To New 52-Week Highs

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The hot run for the technology sector is back and dominating the stock market rally once again. The combination of easing inflation, upbeat corporate earnings, the regional bank crisis and the adoption of new-era technologies have been driving the sector higher.

The rally has pushed many stocks and ETFs to new highs. The ultra-popular tech ETFs are at their new highs and have gained more than 20% so far this year. These include iShares U.S. Technology ETF (IYW - Free Report), SPDR NYSE Technology ETF (XNTK - Free Report), Technology Select Sector SPDR Fund (XLK - Free Report), Vanguard Information Technology ETF (VGT - Free Report) and Fidelity MSCI Information Technology Index ETF (FTEC - Free Report). Each of these funds has a Zacks ETF Rank #2 (Buy), suggesting their continued outperformance.

Solid Fundamentals

Most of the surge was driven by better-than-feared results from some of the world's largest companies. The five biggest tech players — Microsoft (MSFT - Free Report), Amazon (AMZN - Free Report), Meta Platforms (META - Free Report) Alphabet (GOOGL - Free Report), and Apple (AAPL - Free Report) — came up with strong results, spreading huge optimism into the sector.

Total Q1 earnings for 84.2% of the sector’s market cap are down 13.1% on 3.4% lower revenues, with 82% beating EPS estimates and 83.6% beating revenue estimates. The growth rates and beat percentages align with the decelerating trend seen since last year but have shown modest improvement from the preceding period.

Additionally, the sector was powered by investors’ flight to mega-cap, cash-rich technology stocks amid the regional bank crisis and the rising risk of a recession. The mega-cap tech stocks have strong balance sheets, durable revenue streams and robust profit margins and are, thus, better positioned to withstand a possible economic downturn.

The slowdown in inflation has bolstered the appeal for tech stocks. The latest sign of cooling inflation has spurred expectations of easier monetary policy from the Federal Reserve. Bets are rife that the central bank will put a pause on further rate hikes in the June meeting. The move will be positive for technology stocks. As the tech sector relies on borrowing for superior growth, it is cheaper to borrow more money for further initiatives when interest rates are low.

Moreover, the sector outlook remains solid given the global digital shift that has accelerated e-commerce for everything, ranging from remote working to entertainment and shopping. The rapid adoption of cloud computing, big data, the Internet of Things, wearables, VR headsets, drones, virtual reality, artificial intelligence, machine learning, digital communication, blockchain and 5G technology should drive the sector higher.

Let’s dig into the details of the above-mentioned ETFs:

iShares U.S. Technology ETF (IYW)

iShares Dow Jones US Technology ETF tracks the Russell 1000 Technology RIC 22.5/45 Capped Index, gives investors exposure to 139 U.S. electronics, computer software and hardware, and informational technology companies. Software & services, tech hardware & equipment, semiconductors & semiconductor equipment, and media & entertainment are the top four sectors with double-digit exposure each.  

iShares Dow Jones US Technology ETF has AUM of $10.8 billion and charges 39 bps in fees and expenses. Volume is good as it exchanges 643,000 shares a day.


SPDR NYSE Technology ETF provides exposure to 35 leading U.S.-listed technology-related companies by tracking the NYSE Technology Index. Semiconductors take the largest share at 25.5%, while systems software, application software, semiconductor equipment, and interactive media & services round off the next.

SPDR NYSE Technology ETF has amassed $437.9 million and charges 35 bps in annual fees. It trades in an average daily volume of 7,000 shares.

Technology Select Sector SPDR Fund (XLK)

Technology Select Sector SPDR Fund follows the Technology Select Sector Index and holds about 64 securities in its basket. It has key holdings in software, technology hardware, storage & peripherals, and semiconductors & semiconductor equipment.

Technology Select Sector SPDR Fund is the most popular and heavily traded ETF, with AUM of $43.6 billion and an average daily volume of 7 million shares. The fund charges 10 bps in fees per year.

Vanguard Information Technology ETF (VGT)

Vanguard Information Technology ETF manages about $47 billion in its asset base and provides exposure to 364 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Technology hardware storage & peripheral, systems software, semiconductors and application software are the top four sectors.

Vanguard Information Technology ETF has an expense ratio of 0.10%, while volume is solid at nearly 503,000 shares.

MSCI Information Technology Index ETF (FTEC)

MSCI Information Technology Index ETF is home to 361 technology stocks, with AUM of $6 billion. It follows the MSCI USA IMI Information Technology Index.

MSCI Information Technology Index ETF has an expense ratio of 0.08%, while volume is solid at 214,000 shares a day.

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Disclosure: contains statements and statistics that have been obtained from sources believed to be reliable but are not guaranteed as to accuracy or completeness. References to any ...

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