Two predominant market themes of late have been the technology sector's strength and the U.S. dollar's weakness. While it's likely the savvy investor would be making both of these plays, how can you invest in both bullish themes using a single ETF?
The answer is iShares S&P Global Technology (NYSEARCA:IXN). The fund is up 15.5 percent year-to-date and 6.05 percent during the last quarter. That compares to an S&P return of 7.65 percent year-to-date and 1.56 percent during the last quarter.
Note: ^IXIC is the Nasdaq 100 index. EURUSD=X is the Euro vs. the US Dollar. JPYUSD=X is the Japanese Yen vs. the US Dollar.
iShares S&P Global Technology is well diversified, with 117 total holdings. Taking a quick look at the fund's global allocation, 30 percent of the holdings are ex-United States. With investments in countries such as Japan, Finland, Taiwan, Korea, Germany and Canada, investors are easily able to diversify assets away from the dollar.
The dollar has declined against most global currencies during 2007. Since the beginning of the year, the dollar has fallen 8 percent compared to the euro and 3.5 percent against the yen. The decline is even more measured over the last 12 months compared to the euro, with the loss reaching nearly 13.5 percent.
Taking a deeper look by examining the fund's top 10 holdings, you see technology bellwethers IBM (NYSE:IBM), Cisco (NASDAQ:CSCO), Google (NASDAQ:GOOG), Nokia (NYSE:NOK), Apple (NASDAQ:AAPL) and Microsoft (NASDAQ:MSFT). In the last 10 days, these companies have shown considerable strength, even during a period where the broader market has been in a mild decline.
Last Thursday, Google topped earnings estimates, with revenues growing 57 percent year-over-year, for a quarterly total of $4.23 billion. After just three years as a public company, its remarkable growth has pushed it past Dow titans such as Wal-Mart in market capitalization. To put that size into perspective, Google's market cap is nearly as large as the five Dow stocks with the smallest market caps combined: Caterpillar (NYSE:CAT), DuPont (DD), Honeywell (NYSE:HON), Alcoa (NYSE:AA), and General Motors (NYSE:GM).
Monday, Apple continued a strong quarter for technology with equally impressive numbers, beating estimates with a 67 percent rise in quarterly profits. Since the start of the year, shares have more than doubled, as Apple has brought to market several exciting innovations, none more noteworthy than the iPhone.
If you're looking to play the strength of technology domestically but don't believe in the story of continued dollar weakness, look to the iShares S&P GSTI Technology (NYSEARCA:IGM). This fund has a purely domestic focus, with many of the same top10 holdings -- including both Google and Apple. Another company reporting strong earnings recently, Research in Motion (RIMM), also is a top 10 holding.
If you like the international story and seek pure international exposure in the technology sector, you may prefer WisdomTree International Technology (DBT) or WisdomTree International Communications (DGG). These funds utilize an up-and-coming trend in indexing; they diverge from the traditional use of market capitalization in favor of weighting based on fundamentals (specifically cash dividend yield). These funds are both relatively new, and our preference is for the communications fund, with top holdings including Vodafone (NASDAQ:VOD), Telefonica (NYSE:TEF), China Mobile (NYSE:CHL), and Nokia (NOK).
It's clear there are many vehicles to play the technology sector and, at the same time, many ways to diversify away from the dollar. In my opinion, there's no better way to ride this global technology bull than with iShares S&P Global Technology.