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Microsoft's Q2 Beat to Drive These ETFs Higher

Sweta Killa

After the closing bell on Thursday, the world's largest software maker Microsoft MSFT delighted investors with stellar fiscal fourth-quarter 2019 results. It topped both revenue and earnings estimates.

Earnings per share came in at $1.37, outpacing the Zacks Consensus Estimate by 16 cents and improving 21% from the year-ago quarter. Revenues rose 12% year over year to $33.7 billion, topping the consensus estimate of $32.73 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, cloud computing business is witnessing a slowdown. Azure sales grew 64% in the fiscal fourth quarter, down from 73% growth in the previous quarter and reflecting the lowest growth rate in at least four years. Sales of Office 365 Commercial and Dynamic 365 climbed 31% and 45%, respectively.

Following the earnings announcement, shares of Microsoft rose 1% in after-market hours. Currently, Microsoft carries a Zacks Rank #2 (Buy) and has a VGM Score of B. It falls under a top-ranked Zacks industry (top 31%), which suggests that its outperformance is likely to continue in the days ahead.

ETFs in Focus

Investors seeking to bet on the strength of 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 $21.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 13 million shares a day on average. It holds about 67 securities in its basket, with Microsoft occupying the top position at 19.5%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Unbeatable ETF Strategies for 2nd Half).

iShares Dow Jones US Technology ETF IYW

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 149 technology stocks. Of these, Microsoft occupies the top position in the basket with 17.1% of the assets. The fund has AUM of $4.3 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 151,000 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 billion in its asset base and provides exposure to 336 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the top position with 15.6% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 628,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF FTEC

This fund is home to 325 technology stocks with AUM of $2.5 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the top firm with a 15.5% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 278,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: Tech Stocks Log Seven-Year Best Spell: ETF Winners).

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $13.5 million in its asset base so far. It employs data science techniques to provide exposure to 214 technology stocks. Microsoft is the top firm with 15.5% allocation. IETC trades in a light volume of 6,000 shares and charges 18 bps in annual fees.

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 114 stocks in its basket, Microsoft occupies the top spot with 15.4% share. American firms dominate the fund’s portfolio at 79.1%. The ETF has amassed $2.7 billion in its asset base but trades in a good volume of a million shares a day on average. Expense ratio came in at 0.47%.

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