The shining outlook for the best performing sector of 2018 — technology — is seeing no signs of dimming. Buoyed by encouraging industry fundamentals, including a rising interest rate scenario and solid demand for cutting-edge technology as well as surging FANG stocks, the sector continues to retain its top spot.
Now, the upbeat data on personal computer (PC) shipments, which have been feeble over the past several years, have bolstered investors’ confidence in the sector. This is especially true, as global PC shipments had enjoyed the strongest quarter in six years with 2.7% growth per the International Data Corp (IDC) and the first year-over-year increase of 1.4% since the first quarter of 2012 according to Gartner.
The robust performance is driven by stronger demand from business customers though consumer demand remained muted due to the strong adoption of smartphones. Desktop and notebook were the biggest drivers as the market continued to grow for both premium as well as entry models. This has resulted in a resilient outlook for the computer hardware and software segment.
While hardware segment growth has slowed in recent years, new products like virtual reality headsets and wearables is expected to revolutionize the segment as strong demands for these technologies can fuel ongoing innovation in routers, servers and data storage devices. Coming to software, it is already seeing huge growth with cloud being the biggest driver. A rise in spending on PCs and tablets will further add to their growth outlook.
Given this, investors seeking to tap this corner of the broad tech space could consider the following ETFs. These funds have a Zacks ETF Rank #1 (Strong Buy) or 2 (Buy), suggesting their outperformance to continue:
Top-Ranked Tech ETFs to Buy on Strong PC Growth: iShares North American Tech ETF (IGM)
iShares North American Tech ETF (NYSEARCA:IGM) tracks the S&P North American Technology Sector Index, giving investors exposure to 297 electronics, computer software and hardware, and informational technology companies.
The fund has AUM of $1.5 billion and charges 48 bps in annual fees. It trades in a moderate volume of nearly 53,000 shares in hand a day and has a Zacks ETF Rank #1 with a Medium risk outlook.
Top-Ranked Tech ETFs to Buy on Strong PC Growth: iShares U.S. Technology ETF (IYW)
iShares U.S. Technology ETF (NYSEARCA:IYW) also offers exposure to 136 U.S. electronics, computer software and hardware, and informational technology companies by tracking the Dow Jones US Technology Index.
The fund has amassed $4.3 billion in its asset base and charges 44 bps in fees and expenses. Volume is good as it exchanges nearly 245,000 shares in hand a day. More than half of the portfolio is allocated to software and services, while technology hardware and equipment accounts for 24.4% share.
The fund has a Zacks ETF Rank #2 with a Medium risk outlook.
Top-Ranked Tech ETFs to Buy on Strong PC Growth: Technology Select Sector SPDR Fund (XLK)
Technology Select Sector SPDR Fund (NYSEARCA:XLK) is the most popular technology ETF, which follows the Technology Select Sector Index and has $22.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 14.9 million shares a day on average.
It holds about 72 securities in its basket and is widely spread across software, Internet software & services, IT services, hardware storage & peripherals, and semiconductors that make up for a double-digit allocation each. It has a Zacks ETF Rank #2 with a Medium risk outlook.
Top-Ranked Tech ETFs to Buy on Strong PC Growth: Invesco DWA Technology Momentum ETF (PTF)
Invesco DWA Technology Momentum ETF (NASDAQ:PTF) follows the Dorsey Wright Technology Technical Leaders Index, and provides exposure to 43 companies that are showing relative strength (momentum).
Internet software & services and software are the top two industries with 30.5% and 27.8% allocation, while technology hardware storage & peripherals take just 7.7% share in the basket.
The product is relatively illiquid and unpopular with AUM of $139.3 million and average daily volume of 8,000 shares. It charges 60 bps in annual fees and has a Zacks ETF Rank #1 with a High risk outlook.
Top-Ranked Tech ETFs to Buy on Strong PC Growth: John Hancock Multifactor Technology ETF (JHMT)
John Hancock Multifactor Technology ETF (NYSEARCA:JHMT) focuses on the time-tested multifactor approach that emphasizes factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected return.
It follows the John Hancock Dimensional Technology Index, holding 131 stocks. Software segment has the largest allocation in the fund’s portfolio at 27.5%, while technology hardware storage & peripherals takes 11.2% share.
The fund has accumulated $72.4 million in AUM while charging 50 bps in fees per year. Volume is light at around 8,000 shares a day. JHMT has a Zacks ETF Rank #1 with a High risk outlook.
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