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Microsoft Fiscal Q1 Earnings Put These ETFs in Focus

Sweta Killa

After the closing bell on Wednesday, the world's largest software maker Microsoft MSFT delighted investors with stellar fiscal first-quarter 2020 results. It topped both revenue and earnings estimates but continued to witness a slowdown in Azure sales growth.

Earnings per share came in at $1.38, outpacing the Zacks Consensus Estimate by 13 cents and improving 21% from the year-ago quarter. Revenues rose 14% year over year to $33.1 billion, topping the consensus estimate of $32.23 billion. The outperformance reflects the company’s success in shifting its business toward Internet-based computing, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has become a major source of growth (see: all the Technology ETFs here).

However, the cloud-computing business is witnessing a slowdown. Azure sales grew 59% in the fiscal first quarter, down from 64% growth in the previous quarter. Sales of Office 365 Commercial and Dynamic 365 climbed 25% and 41%, respectively.

Following the earnings announcement, shares of Microsoft were little changed in after-market hours. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a VGM Score of B. It falls under a top-ranked Zacks industry (top 24%), which suggests its outperformance in the days ahead.

ETFs in Focus

Investors seeking to bet on this software leader could definitely tap ETFs. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $22.4 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 12.6 million shares a day on average. It holds about 68 securities in its basket, with Microsoft occupying the top position at 19.2%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: ETFs to Buy on Phase 1 of U.S.-China Trade Deal).

iShares U.S. Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 153 technology stocks. Of these, Microsoft occupies the top position in the basket with 17% of the assets. The fund has AUM of $4.2 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 134,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF VGT

This fund manages about $21.3 billion in its asset base and provides exposure to 325 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 16% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 567,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF FTEC

This fund is home to 316 technology stocks with AUM of $2.5 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 15.7% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 275,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $16.1 million in its asset base so far. It employs data science techniques to provide exposure to 223 technology stocks. Microsoft is the top firm with 15.7% allocation. IETC trades in a light volume of 8,000 shares and charges 18 bps in annual fees (read: Can Q3 Earnings Bring Back the Allure for FAANG ETFs?).

iShares Global Tech ETF IXN

This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 116 stocks in its basket, Microsoft occupies the top spot with 15.1% share. American firms dominate the fund’s portfolio at 78.6%. The ETF has amassed $2.8 billion in its asset base but trades in a good volume of 76,000 shares a day on average. Expense ratio came in at 0.46%.

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