ETF Talk: Investing in the IT Matrix

Doug Fabian

Doug Fabian is known for his expert knowledge of ETFs, bear funds and enhanced index funds to profit in any market climate.

While the last couple of ETF Talks have focused on location-based technology exchange-traded funds (ETFs), this week’s write-up will target a key part of the industry: information technology.

In this age of communication, conveying information increasingly faster and more efficiently is of paramount importance. And an ETF that follows this trend is the Vanguard Information Technology ETF (VGT).

This non-diversified fund tracks an index which invests in companies in both the United States and in the information technology sector. Last year, VGT rose 12.61%, and the fund is following up that impressive growth with gains of 6.05% so far this year. This ETF also has a 1.14% dividend yield.

Though these numbers look good, timing should be a factor in your decision to invest. As I have mentioned in previous weeks, right now it is far better simply to observe technology stocks than to invest in them, as these shares tend to fall as temperatures rise in the summer.

As VGT is a technology ETF, 87.54% of its assets are invested in the technology sector. As with previously discussed technology ETFs, the balance resides in various “supporting” sectors which either can help or be helped by information technology: financial services, 4.88%; industrials, 4.59%; consumer cyclical, 2.32%; communication services, 0.60%; basic materials, 0.06%; and consumer defensive, 0.01%.

VGT’s top ten individually held companies comprise 58.02% of the fund’s assets. Most of that 58.02% of the holdings stems from VGT’s heavy investment in Apple Inc. (AAPL). Indeed, Apple accounts for 17.27% of the fund’s holdings. The other companies in this ETF’s top five holdings are recognizable names to the computer-savvy consumer and have somewhat smaller shares of the fund’s holdings: International Business Machines (IBM), 7.19%; Microsoft Corporation (MSFT), 6.97%; Google Inc. (GOOG), 6.42%; and Oracle Corporation (ORCL), 4.50%.

As the realm of information technology should continue to prosper in this age of communication, expect funds like VGT to reap that success. And with the household names in its holdings having the potential to advance this year, with Apple’s expected new products and Google’s innovation, this ETF could do very well. However, due to technology’s traditional summer slump, I recommend holding off on investing in VGT until the fund troughs and resumes rising.

Exclusive  Smart-Beta ETFs Growing in Popularity

Meanwhile, if you want my advice about buying and selling specific ETFs, including appropriate stop losses, please consider subscribing to my Successful Investing newsletter. As always, I am happy to answer any of your questions about ETFs, so do not hesitate to email me by clicking here. You may see your question answered in a future ETF Talk.

previous article

Today is May 1, or May Day, depending upon which circles you run in. For investors, the first day of May ushers in what I call the “slogan months.” This period is when you hear a loud chorus of market wizards warning investors to “sell in May and go away.” Interestingly, this market cliché actually does have some historical merit. You see, in a majority of years, the real money in stocks is made between November and April. From May to October, there’s a lot of profit taking, slow t

PREMIUM SERVICES FOR INVESTORS

Dr. Mark Skousen

Named one of the "Top 20 Living Economists," Dr. Skousen is a professional economist, investment expert, university professor, and author of more than 25 books.

Product Details

LEARN MORE HERE

Bryan Perry

A former Wall Street financial advisor with three decades' experience, Bryan Perry focuses his efforts on high-yield income investing and quick-hitting options plays.

Product Details

LEARN MORE HERE

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker,
financial journalist, and money manager. As well as a book author and regular contributor to
numerous investment websites, Jim is the editor of:

Product Details

LEARN MORE HERE

Bob Carlson

Bob Carlson provides independent, objective research covering all the financial issues of retirement and retirement planning. In addition, Bob serves as Chairman of the Board of Trustees of the Fairfax County (VA) Employees’ Retirement System, which has over $2.8 billion in assets.

Product Details

LEARN MORE HERE

Mike Turner

Mike Turner’s financial, mathematical, computer science and engineering background serves as the foundation for his disciplined, rules-based approach to trading. Mike’s three services include:

Product Details

LEARN MORE HERE

Hilary Kramer

Hilary Kramer is an investment analyst and portfolio manager with 30 years of experience on Wall Street. Since 2010, Hilary's financial publications have provided stock analysis and investment advice to her subscribers:

Product Details

LEARN MORE HERE

DividendInvestor.com

Used by financial advisors and individual investors all over the world, DividendInvestor.com is the premier provider and one-stop shop for dividend information and research.

Product Details

Popular tools include our proprietary Dividend Calendar, Dividend Calculator, Dividend Score Card, and many more.

LEARN MORE HERE