ETFs With The Most Exposure To Microsoft Corporation [Technology SPDR (ETF), iShares Dow Jones US Technology (ETF)]

iShares S&P North American Technology-Software Index Fund (NYSEARCA:IGV)

This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a small basket of 61 securities with Microsoft taking the second spot at 9.33% of total assets.

The fund is quite popular with over $1.3 billion in AUM while volume is moderate as it exchanges nearly 110,000 shares a day. The product charges 48 bps in fees and expenses and was up about 9.10% in the trailing three months. IGV has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook (read: Buy These 2 Tech ETFs on NASDAQ Sell-Off).

Select Sector SPDR Technology ETF (NYSEARCA:XLK)

The most popular technology ETF on the market, XLK follows the Technology Select Sector Index. This fund manages about $12.6 billion in asset base and trades in heavy volume of roughly 7.6 million. The ETF charges 16 bps in fees per year from investors. In total, the fund holds about 73 securities in its basket.

Of these firms, Microsoft takes the second spot, making up 8.67% of the assets. In terms of industrial exposure, the fund is widely spread across technology hardware storage & peripherals, software, IT services, Internet software & services and diversified telecom service that make up for double-digit allocation. XLK gained nearly 13.5% over the past three months and has a Zacks ETF Rank of 3 or ‘Hold’ with a Medium risk outlook.

The following table compares the performance of these three ETFs with that of Microsoft from a risk/return tradeoff point of view.

ETFs Trailing 3-Months Returns (as of April 4) 1 Year Return (as of April 4) Correlation With Microsoft’s  Share Price Risk (Annualized Standard Deviation)
IYW 11.79% 19.82% 0.84 10.06%
IGV 9.10% 25.90% 0.97 12.04%
XLK 13.45% 22.21% 0.95 9.03%
MSFT 11.18% 39.45% N/A 26.48%

Bottom Line

While it is true that Microsoft has generated much higher returns over the one-year period than the ETFs, the exposure to only MSFT requires above par risk appetite given its higher volatility (annualized standard deviation is 26.48%).

In order to minimize this risk, investors could definitely look to the three ETFs that have a high correlation to MSFT’s share price. Out of the three, XLK with a correlation of 0.95 seems the best choice for investors seeking to ride the most of the recent surge in Microsoft given higher returns and lower risk.

The other two products – IYW and IGV – also require lower risk tolerance levels and provide diversified exposure to the tech segment. However, both have clearly benefited from the jump in Microsoft shares, and could continue to do well if this software giant remains a strong performer in the months ahead.

This article is brought to you courtesy of Sweta Killa.

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