How to Trade or Invest in the Tech Sector with ETFs
If you read or listen to the stock market news every day, you will hear how the tech sector did. The tech sector was up today because Apple had great news or the tech sector is down today because Intel had lower than expected earnings. The tech sector is a big part of the stock market and our daily lives.
Industries of the Tech Sector
Many might think the tech sector is mainly comprised of Apple and their latest iPhone model or Microsoft coming out with a new operating system which people stand in line for. There is a lot more to the tech sector which is why it is important to the stock market. There are many industries in the tech sector including:
- Software includes all applications of software like multimedia, graphics, security, system and business software.
- Communications equipment for long distance, networks, wireless communications and the telecom industry.
- Computer industry for home based computers, business computer systems and computer peripherals.
- Information services that include internet providers, the healthcare industry and the technology industry.
- Printed circuit boards.
- Scientific industry.
- Semiconductor industry, which includes memory chips, integrated circuits, specialized and semiconductor equipment and materials.
Companies of the Tech Sector
- Western Digital
- Hewlett Packard
- Honeywell Auto
- Advanced Micro (AMD)
- Texas Instruments
- Sprint Nextel
As you can see, there are many well-known companies in the tech sector that we all use every day. You can trade or invest in the broad tech sector or just an industry of the tech sector.
Tech Sector ETFs
If you feel that technology companies and the tech sector will gain strength with the economy as companies start to buy new computers and software, then this could be the time to invest in the tech sector. When new computers are bought by people, the government and businesses, tech sector industries like computer peripherals, semi-conductors and memory chips will also gain. People will also continue to buy the latest cell phones, mobile devices and mobile applications. And the information boom will continue as companies are moving to an internet based only information and customer services. Here are the tech sector ETFs you can trade or invest in.
- SPDR Technology Select Sector (XLK) is currently the largest of the tech sector ETFs. It currently has a Morningstar risk rating of below average. The biggest percentages of their holdings are in Apple, Microsoft, IBM, AT&T, Verizon, Oracle, Intel and Google.
- Market Vectors Semiconductors (SMH) invests in the semiconductor industry with their main holdings in Intel, Taiwan Semiconductor, Texas Instruments and Broadcom.
- Vanguard Information Technology (VGT) holds Apple, IBM, Microsoft, Google and Oracle. VGT follows the MSCI US Market Index Information Technology Index.
- iShares Dow Jones US Technology (IYW) holds Microsoft, Apple, IBM, Google, Intel and Cisco as its main holdings.
- iShares North American Tech-Software (IGV) tracks the S&P North American Technology Software Index with its main holdings Microsoft, Intuit, Oracle, Adobe, Citrix, Symantec and Red Hat.
- iShares PHLX SOX Semiconductor Index (SOXX) invests in semiconductor industries with their top holdings that include Broadcom, Applied Materials, Texas Instruments, Intel and Taiwan Semiconductor.
- First Trust Dow Jones Internet Index (FDN) tracks the Dow Jones Internet Composite Index and invests in Amazon, Google, eBay, Priceline, Yahoo, Juniper and Akamai.
- First Trust NASDAQ 100 Tech Index (QTEC) invests in tech companies on the NASDAQ 100 Index that includes Akamai, Micron, Altera, Cerner, Yahoo, Apple and Research in Motion.
- PowerShares S&P Small Cap Information Tech (PSCT) is a good tech sector ETF if you would like to invest in small cap technology companies. Their holdings include Wright Express, Viasat, Commvault Systems, Anixter, Taleo and Cognex.
- Global X Social Media Index ETF (SOCL) invests in social media companies. This could be one way to own Facebook stock and other social media companies. Their holdings include SINA, Tencent, NetEase, Gree, Renren, Google, NEXON, Zynga and Linkedin.
- First Trust ISE Cloud Computing Index Fund (SKYY) captures the cloud computing area of the tech sector as cloud computing becomes more widely used.
This is a list of the larger tech sector ETFs, there are many more specialized ETFs in the tech sector including nanotechnology, software, China tech sector companies and cloud computing. You can view a complete list of tech sector ETFs at ETF Database.com. As you can see, many of these tech sector ETFs hold the same companies. You don’t want to overlap and end up owning too many shares of the same companies.
Leveraged and Inverse Tech Sector ETFs
Leveraged ETFs can double or triple your money if you are correct in the direction of the tech sector. If you are not correct, you can also lose double and triple your money. If you think the tech sector is going to drop, you can trade inverse ETFs. You will profit with inverse ETFs when the tech sector goes down. The 2X (200%) and 3X (300%) leveraged ETFs should be traded daily, or at the very least watched daily.
- Direxion Daily Technology Bull 3X (TECL) seeks a daily return of 300% of the Russell 1000 Technology Index.
- Direxion Daily Semiconductor Bull 3X (SOXL) replicates 300% of the daily performance of the PHLX Semiconductor Sector Index.
- Direxion Daily Technology Bear 3X (TECS) seeks a daily return of 300% of the inverse or opposite of the Russell 1000 technology index. If you believe the tech sector will drop, this ETF will gain 300% of that drop, if it does indeed drop.
- Direxion Daily Semiconductor Bear 3X (SOXS) seek a daily return of 300% of the inverse (opposite) of the PHLX Semiconductor Sector Index.
Tech Sector ETF Conclusion
When you trade or invest in tech sector ETFs, look at the volume of the ETF. A low volume can mean wide price swings and the possibility you might not be able to sell it when you want to. Learn about leveraged and inverse ETFs before you put your money into them.
Copyright © February 2012 Sam Montana
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