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Tech ETFs to Buy as Microsoft Beats Big on Earnings

Sweta Killa

After the closing bell on Thursday, the world's largest software maker Microsoft MSFT delighted investors with stellar fourth-quarter fiscal 2017 results on strong performance by its fast-growing cloud business. Earnings per share came in at 98 cents, easily outpacing the Zacks Consensus Estimate of 71 cents and higher than the year-ago earnings of 69 cents. Revenues rose 13% year over year to $24.7 billion topping our estimate of $24.12 billion.

The outperformance was credited to the strength in the cloud business, particularly Azure, whose sales grew 97% from the year-ago period. Investors should note that Microsoft’s total cloud business brought in about $7.4 billion in the fiscal fourth quarter. This clearly shows that Satya Nadella’s efforts to turn around the business, and focus on cloud services and mobile applications are paying off and beneficial for the company’s future growth (read: Profit from Cloud Computing Boom with This ETF).

For the ongoing first quarter of fiscal 2018, Microsoft expects revenues in the range of $23.6-$24.3 billion. The midpoint of which is higher than the Zacks Consensus Estimate of $24.1 billion.

Following the robust results, shares of Microsoft rose as much as 3% in after-market hours to new highs on elevated volumes. Currently, Microsoft carries a Zacks Rank #1 (Strong Buy) with a solid Zacks Industry rank in the top 36%, suggesting that it is poised to outperform in the days ahead (read: Tech ETFs on Fire as Q2 Earnings Season Heats Up).

ETFs in Focus

Investors’ seeking to bet on this software leader with lower risk could definitely look into the ETF world. While there are several ETF options available in the market, we have highlighted eight technology ETFs that have the largest exposure to Microsoft and have a Zacks ETF Rank of 1 or 2 (Buy), suggesting smooth trading ahead.

iShares Dow Jones US Technology ETF IYW

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 136 technology stocks. Of these, Microsoft occupies the second position in the basket with 12.4% of assets. The fund has AUM of $3.6 billion while charging 44 bps in fees and expenses. Volume is good as it exchanges nearly 219,000 shares in hand a day. The product has a Zacks ETF Rank of 1.
Select Sector SPDR Technology ETF XLK

This most popular technology ETF follows the Technology Select Sector Index and has $17 billion in AUM. This fund trades in heavy volume of more than 9.7 million shares and charges 14 bps in fees per year. In total, the fund holds about 72 securities in its basket with MSFT taking the second spot at 10.7% of the assets. It has a Zacks ETF Rank of 2 (see: all the Technology ETFs here).

Vanguard Information Technology ETF VGT

This fund manages about $14 billion in its asset base and provides exposure to 364 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. Here, takes the third spot with a 9.4% share. The ETF has 0.10% in expense ratio while volume is solid at nearly 483,000 shares. It has a Zacks ETF Rank of 2.

MSCI Information Technology Index ETF FTEC

This fund is home to 363 technology stocks with AUM of $1 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 9.5% allocation. The ETF has 0.08% in expense ratio while volume is good at 225,000 shares a day. It has a Zacks ETF Rank of 2.

iShares North American Tech ETF IGM

This ETF tracks the S&P North American Technology Sector Index, giving investors exposure to 285 electronics, computer software and hardware, and informational technology companies. Microsoft occupies the top position in the basket with 8.6% share. The fund has AUM of $1.2 billion and charges 48 bps in annual fees. It trades in light volume of nearly 26,000 shares in hand a day and has a Zacks ETF Rank of 2.

iShares North American Tech-Software ETF 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 basket of 57 securities with Microsoft occupying the third spot at 8.6% of total assets. It is quite popular with AUM of $1.1 billion while volume is good as it exchanges nearly 163,000 shares a day. The product charges 48 bps in annual fees and has a Zacks ETF Rank of 1 (read: 3 Niche ETFs That Have Surged to #1 Rank This Summer).

iShares Edge MSCI Multifactor Technology ETF TCHF

This ETF has attracted $3.6 million in its asset base since its debut a year ago and trades in a meager volume of less than 1000 shares. It targets companies that have the potential to outperform the broad U.S. technology sector and tracks the MSCI USA Information Technology Diversified Multiple-Factor Capped Index. Holding 43 stocks in its basket, Microsoft is the second firm accounting for 8.4% of the portfolio. TCHF charges 35 bps in fees per year and has a Zacks ETF Rank of 2.

John Hancock Multifactor Technology ETF JHMT

This fund focuses on the time-tested multifactor approach emphasizing 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 129 stocks. Of these, Microsoft takes the top spot at 6.2% share. The fund has accumulated $48.6 million in AUM while charging 50 bps in fees per year. Volume is light at around 3000 shares a day. JHMT has a Zacks ETF Rank of 2 (read: Is the Tech Rout Overstated? Buy 3 Stocks & ETFs on the Dip).

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