A List Of The Top Ten (10) Technology Sector ETFs (SMH, VGT, IYW, QQQ, CSCO)

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October 7, 2011 2:59pm NASDAQ:QQQ NYSE:IYW

David Fry: Our goal in this profile is to help investors wade through the many competing ETF offerings available. Using our long experience as an ETF publication,  we can help select those ETFs that matter and may not be repetitive.  The result is a more manageable list of issues from which to view and


make selections.

There are currently nearly three dozen ETFs oriented to the  technology sector with more on the way. The following analysis features a  fair representation of ETFs available. We believe from these investors  may choose an appropriate ETF to satisfy the best index-based offerings  individuals and financial advisors may utilize.

We’re not ranking these ETFs favoring one over another so don’t let  the listing order mislead you. Although we may use some of these in ETF  Digest portfolios it’s not our intention to recommend one over another.

ETFs are based on indexes tied to well-known index providers  including Russell, S&P, Barclays, MSCI, Dow Jones and so forth. Also  included are some so-called “enhanced” indexes that attempt to achieve  better performance through more active management of the index.

Previously we had avoided using HOLDRS but now that Van Eck is most likely taking over these issues some like ML Semiconductor HOLDRS (AMEX:SMH) will be popular.

Where competitive issues exist and/or repetitive issues available at a  fee cost saving we mention those as other choices. New issues are  coming to market consistently (especially globally) and sometimes these  issues will need more seasoning before they may be included at least in  our listings.

For sophisticated traders and investors wishing to hedge or speculate  leveraged long/short and inverse issues are available from ProShares and  DirexionShares.

SPDR Technology Sector ETF (NYSE:XLK) follows the Technology Select Sector Index which basically breaks down the S&P 500 to those companies involved in technology and relevant subsectors. The fund was launched December 1998. The expense ratio is .20%. AUM (Assets under Management) equal $7 billion while average daily trading volume is over 14M shares. As of late-September 2011 the annual dividend yield is 1.42% and YTD return -2.78%.

Data as of September 2011

XLK Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 14.60%
  2. International      Business Machines Corp (IBM):      8.55%
  3. Microsoft      Corporation (MSFT): 8.10%
  4. AT&T Inc (T): 6.92%
  5. Google, Inc. (GOOG): 5.58%
  6. Oracle      Corporation (ORCL): 4.51%
  7. Verizon      Communications Inc (VZ): 4.22%
  8. Intel Corp (INTC): 3.74%
  9. Qualcomm, Inc. (QCOM): 3.55%
  10. Cisco Systems      Inc (CSCO): 3.54%

Vanguard Information Technology ETF (NYSE:VGT) follows the MSCI US Investable Market Information Technology 25/50 Index. The index consists of small to large companies in the broad technology space including various sectors and subsectors. The fund was launched January 2004. The expense ratio is .24%. AUM equal $1.7 billion with average daily trading volume 215K shares. As of mid-September 2011 the annual dividend is $.36 making the current yield .96% and YTD return -3.43%.

Data as of September 2011

VGT Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 11.51%
  2. International      Business Machines Corp (IBM):      7.79%
  3. Microsoft      Corporation (MSFT): 7.32%
  4. Oracle      Corporation (ORCL): 4.95%
  5. Google, Inc. (GOOG): 4.73%
  6. Intel Corp (INTC): 4.53%
  7. Qualcomm, Inc. (QCOM): 3.47%
  8. Cisco Systems      Inc (CSCO): 3.21%
  9. Hewlett-Packard      Co (HPQ): 2.95%
  10. EMC Corporation      (EMC): 2.12%

iShares Dow Jones U.S. Technology ETF (NYSE:IYW) follows the index of the same name. The fund was launched May 2000. The expense ratio is .48%. AUM equal $1.3 billion and average daily trading volume is 256K shares. As of mid-September 2011 the annual dividend yield is 1.43% YTD return -3.95%.

Alternative choices with similar characteristics include SPDR MS Technology ETF (NYSE:MTK) which follows the Morgan Stanley Technology Index. The expense ratio is .50%.  iShares S&P/GSTI Technology ETF (NYSE:IGM) follows the index of the same name. The expense ratio is .48%. Both ETFs have achieved similar rates of return with similar holdings.

Data as of September 2011

IYW Top Ten Holdings & Weightings

  1. Apple, Inc. (AAPL): 16.92%
  2. International      Business Machines Corp (IBM):      10.05%
  3. Microsoft      Corporation (MSFT): 9.53%
  4. Google, Inc. (GOOG): 6.44%
  5. Intel Corp (INTC): 5.30%
  6. Oracle      Corporation (ORCL): 5.08%
  7. Cisco Systems      Inc (CSCO): 4.17%
  8. Qualcomm, Inc. (QCOM): 4.06%
  9. Hewlett-Packard      Co (HPQ): 2.71%
  10. EMC Corporation      (EMC): 2.23%

First Trust NASDAQ 100 Technology ETF (NASDAQ:QTEC) follows the NASDAQ 100 Technology Sector Index is an equally weighted index. The fund was launched in April 2006. The expense ratio is .60%. AUM equal $158 million while average daily trading volume is 422K shares. As of mid-September 2011 the annual dividend is $16 making the current yield .34% and YTD return -11%.

Most investors believe the logical alternative to QTEC is PowerShares NASDAQ 100 ETF (NASDAQ:QQQ). It follows the NASDAQ 100 Index which includes the largest 100 nonfinancial companies listed on the NASDAQ. But it’s not a pure technology play with nearly 30% of constituents in other sectors.

Data as of September 2011

QTEC Top Ten Holdings & Weightings

  1. Baidu, Inc. ADR (BIDU): 3.22%
  2. Google, Inc. (GOOG): 3.01%
  3. Apple, Inc. (AAPL): 2.94%
  4. Broadcom      Corporation (BRCM): 2.83%
  5. Cerner      Corporation (CERN): 2.74%
  6. Microsoft      Corporation (MSFT): 2.73%
  7. Marvell      Technology Group, Ltd. (MRVL):      2.71%
  8. Check Point      Software Technologies, Ltd. (CHKP):      2.67%
  9. Cisco Systems      Inc (CSCO): 2.58%
  10. Intel Corp (INTC): 2.54%

First Trust Internet ETF (NYSE:FDN) follows the Dow Jones Internet Index which demands a constituent company must have 50% of its revenues from the internet. It was launched in June 2006. The expense ratio is .60%. AUM equal $465M and average daily trading volume is 300K shares. In our opinion this ETF provides the greatest exposure to companies in this important sector. As of mid-September 2011 the annual dividend was $.08 making the yield around .12% and YTD return -9.32%.

An alternative selection might include ML Internet Architecture (AMEX:IAH) and ML Internet Holders (AMEX:HHH). Both holders are trusts but should convert to ETFs if Van Eck gains shareholder approval to manage these and no doubt change some of the weightings which are too heavy in some stocks and contain few issues. This is due to the trust structure not permitting new issues added to their holdings.

Data as of September 2011

FDN Top Ten Holdings & Weightings

  1. Google, Inc. (GOOG): 11.52%
  2. Amazon.com Inc (AMZN): 8.99%
  3. eBay Inc (EBAY): 6.34%
  4. Priceline.com,      Inc. (PCLN): 5.51%
  5. Salesforce.com,      Inc. (CRM): 4.49%
  6. Yahoo, Inc. (YHOO): 3.93%
  7. Netflix, Inc. (NFLX): 3.81%
  8. Check Point      Software Technologies, Ltd. (CHKP):      3.57%
  9. Juniper      Networks, Inc. (JNP)

iShares Software ETF (NYSE:IGV) tracks the S&P North American Technology Software Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal $511 million and average daily trading volume is roughly 147K shares. As of mid-September 2011 the dividend is only .07% and YTD return -8%.

Alternative choices include ML Software HOLDR (AMEX:SWH) and PowerShares Dynamic Software ETF (NYSE:PSJ). The latter tracks the Dynamic Software Intellidex Index an enhanced index which seeks to more actively manage the constituents via quantitative methodologies.

Data as of September 2011

IGV Top Ten Holdings & Weightings

  1. Microsoft      Corporation (MSFT): 10.54%
  2. Oracle      Corporation (ORCL): 8.42%
  3. Salesforce.com,      Inc. (CRM): 6.75%
  4. Symantec Corp (SYMC): 5.64%
  5. Adobe Systems      Inc (ADBE): 5.54%
  6. Citrix Systems,      Inc. (CTXS): 4.94%
  7. Intuit, Inc. (INTU): 4.88%
  8. CA, Inc. (CA): 3.53%
  9. Red Hat, Inc. (RHT): 3.38%
  10. Electronic Arts,      Inc. (ERTS): 3.32%

iShares Networking ETF (NYSE:IGN) tracks the S&P North American Technology-Multimedia Networking Index. The fund was launched in July 2001. The expense ratio is .48%. AUM equal nearly $190 million with average daily trading volume 126K shares. As of mid-September 2011 the dividend yield is .10% and the YTD return was -21%.

An alternative choice is PowerShares Dynamic Networking ETF (NYSE:PXQ) which tracks the Dynamic Networking Intellidex Index. The YTD return for PXQ as of mid-September 2011 was -17%. The difference in performance is due to a lower weighting in Cisco (NASDAQ:CSCO) and other underperforming constituents. This makes the enhancement of the index methodology marginally more effective in this case.

Data as of 2011-09-06

IGN Top Ten Holdings & Weightings

  1. Cisco Systems      Inc (CSCO): 9.90%
  2. Motorola      Solutions, Inc. (MSI): 8.92%
  3. Qualcomm, Inc. (QCOM): 8.90%
  4. Research in      Motion Ltd (RIMM): 8.35%
  5. Motorola      Mobility Holdings, Inc. (MMI):      8.26%
  6. Juniper      Networks, Inc. (JNPR): 6.34%
  7. Harris      Corporation (HRS): 4.48%
  8. Polycom, Inc. (PLCM): 4.05%
  9. F5 Networks,      Inc. (FFIV): 3.83%
  10. Riverbed      Technology, Inc. (RVBD): 3.62%

iShares PHLX SOX Semiconductor ETF (NASDAQ:SOXX) tracks the popular PHLX Semiconductor Index. The fund was launched in October 2001. The expense ratio is .48%. AUM equal nearly $268 million and average daily trading volume is 386K shares. As of mid-September 2011 the annual dividend is $.44 and YTD return is -11%.

The logical alternative is ML Semiconductor HOLDR (NYSE:SMH) which is much more popular and better traded than SOXX. We choose to focus on ETFs when possible but can’t ignore the consistently overall better trading behavior for SMH which is widely followed by active traders. AUM equal $541M and average daily trading volume is over 12M shares. With the likely conversion of SMH to an ETF managed by Van Eck the AUM is falling sharply. We’ll have to wait and see how this situation evolves

Data as of September 2011

SOXX Top Ten Holdings & Weightings

  1. Broadcom      Corporation (BRCM): 9.48%
  2. Intel Corp (INTC): 9.05%
  3. Applied      Materials, Inc. (AMAT): 8.22%
  4. Texas      Instruments, Inc. (TXN): 7.51%
  5. Altera Corp. (ALTR): 6.46%
  6. Avago Technologies      Ltd (AVGO): 4.96%
  7. Taiwan      Semiconductor Manufacturing ADR (TSM):      4.43%
  8. Xilinx Inc (XLNX): 4.41%
  9. Linear      Technology (LLTC): 4.19%
  10. Marvell      Technology Group, Ltd. (MRVL):      4.10

Data as of September 2011

SMH Top Ten Holdings & Weightings

  1. Intel Corp (INTC): 20.74%
  2. Texas      Instruments, Inc. (TXN): 20.40%
  3. Applied      Materials, Inc. (AMAT): 9.95%
  4. Altera Corp. (ALTR): 7.70%
  5. Analog Devices      Inc (ADI): 6.41%
  6. Xilinx Inc (XLNX): 4.97%
  7. National      Semiconductor (NSM): 4.66%
  8. Linear      Technology (LLTC): 4.57%
  9. KLA-Tencor      Corporation (KLAC): 3.72%
  10. Broadcom      Corporation (BRCM): 3.44%

First Trust Technology AlphaDEX ETF (NYSE:FXL) follows the StrataQuant Technology Index which focuses on those select technology stocks in the Russell 1000 Index. From this First Trust employs an enhanced strategy to select and alter the index. The fund was launched in May 2007. The expense ratio is .70%. AUM equal $140 million and average daily trading volume is 140K shares. As of July 2011 the dividend has been negligible but the YTD return has been -15%.

Data as of September 2011

FXL Top Ten Holdings & Weighting

  1. SanDisk Corp (SNDK): 2.17%
  2. Intel Corp (INTC): 2.13%
  3. Marvell      Technology Group, Ltd. (MRVL):      2.12%
  4. Varian      Semiconductor Equipment Associates, Inc. (VSEA): 2.09%
  5. Micron      Technology, Inc. (MU): 2.08%
  6. Hewlett-Packard      Co (HPQ): 2.04%
  7. Western Digital      Corporation (WDC): 2.00%
  8. Computer      Sciences Corporation (CSC):      1.97%
  9. International      Rectifier (IRF): 1.94%
  10. Vishay Intertechnology, Inc. (VSH): 1.94%

PowerShares Dynamic Technology ETF (NYSE:PTF) follows the Dynamic Technology Sector Intellidex Index which is another “enhanced” index modified by quantitative methodologies. The fund was launched in October 2006. The expense ratio is .60%. AUM equal $25 million making and average daily trading volume is 13K shares. As of mid-September 2011 the dividend has been negligible and YTD return is -13%.

Data as of September 2011

PTF Top Ten Holdings & Weightings

  1. International      Business Machines Corp (IBM):      2.93%
  2. eBay Inc (EBAY): 2.87%
  3. MasterCard      Incorporated A (MA): 2.86%
  4. Accenture PLC (ACN): 2.80%
  5. Dell Inc (DELL): 2.77%
  6. KLA-Tencor      Corporation (KLAC): 2.57%
  7. The Western      Union Company (WU): 2.56%
  8. Fiserv, Inc. (FISV): 2.56%
  9. Rackspace      Hosting, Inc. (RAX): 2.47%
  10. Lam Research      Corporation (LRCX): 2.39%

Technology and innovations in the sector remain a primary focus for investors. Clearly this sector will remain the leading source of innovation and economic growth in the U.S. and globally as well. As the sector expands overseas we’ll no doubt offer a review for these issues in another profile.

Investors should note that in a rising market particularly ETFs linked to enhanced issues will tend to outperform conventional index linked issues. I’ve not done enough analysis to determine their relative strength during down market periods.

New ETFs from highly regarded and substantial new providers are also being issued. These may include Charles Schwab’s ETFs and Scottrade’s Focus Shares which both are issuing new ETFs with low expense ratios and commission free trading at their respective firms. These may also become popular as they become seasoned.

As stated with other sectors, remember ETF sponsors must issue and their interests aren’t aligned with yours. They have a business interest and wish to have a competitive presence in any popular sector.

For further information about portfolio structures using technical indicators like DeMark and other indicators see www.etfdigest.com. You may follow us on Facebook as well and join our group conversations.

Written By David Fry From ETF Digest

David is founder and publisher of ETF Digest and best selling book author of Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management published by Wiley Finance in 2008.  In July of 2009, Fry was named in the ETF Hall of Fame as one of the Top 25 people who revolutionized the ETF industry and guided ETF investing from its conception to widespread acceptance among all breeds of investors. Fry founded the ETF Digest in 2001 and was among the very first to see the need for an online publication that provided individual investors and financial professionals with trading tools, market information and actionable advice on ETF investing.  ETF Digest was recently ranked 9th in the Top 100 ETF websites from Alexa on exchange traded funds. Dave Fry has devoted over 35 years to the business of trading and portfolio management. He is registered as an arbitrator with the Financial Industry Regulatory Authority (FINRA) and the National Futures Association (NFA).

 


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