The technology sector not only powers our lives, but it also seems poised to power the domestic rally. To play along, there are a number of technology sector and sub-sector exchange traded funds at your disposal, and many of them are above their long-term trend lines.
The technology sector is on the brink of another boom for various reasons, according to Kevin Grewal for The Street. Reasons the technology sector is set to do well include:
- The sector appears to have strong fundamentals and is relatively cheap compared to other sectors. [How China Affects Technology ETF Growth.]
- Big technology companies are known to hoard cash, which makes it that much easier to expand into new businesses and hold onto competitive advantages. With excess cash, these companies are able to take on risk without being at the mercy of a tight credit market.
- IT spending had its worst year ever in 2009, but don’t expect a repeat in 2010. Analysts believe growth will return to the tune of 3.3% globally.
- History suggests that companies tend to increase their technology budgets as economies enter periods of recovery, which will likely be beneficial for all of these companies. [ETFs to Play the Tech Sector Boom.]
If you want to use ETFs for technology sector exposure, look around. There are broad funds, like Technology Select Sector SPDR (XLK) and PowerShares QQQ (QQQQ).
If you’re interested in going narrower, you’ve get an array of choices: networking, semiconductors, software and nanotechnology. Before you dive in, be sure to note whether the trend is actually there and back up your decision with an understanding of the fundamentals. [How to Follow Trends.]
Funds such as PowerShares Dynamic Semiconductors (PSI), Software HOLDRs (SWH), PowerShares Lux Nanotech (PXN) and iShares S&P North America Technology – Semiconductors (IGW) can give you more fine-tuned exposure to a sub-sector you believe is poised to perform well.
You’re not simply restricted to the United States, either. In fact, a number of countries – particularly in Asia – have significant prowess in the technology sector. Funds such as iShares S&P Global Technology (IXN), Claymore/AlphaShares China Technology (CQQQ), Global X China Technology (CHIB), SPDR S&P International Technology (IPK) and iShares MSCI Taiwan (EWT), which is 60% technology, can get you global exposure.