The information technology sector covers most makers and providers of computer, data and electronic equipment and services. This includes software, networking and telecommunications equipment manufacturers, IT consultants, and providers of Internet services, mobile phone producers and semiconductor manufacturers.
Source: Comptia.org
Generally, tech had a bumpy ride so far, but looking at year to date returns the sector is one of the top-performing groups, and I remain confident that IT sector will continue to outperform for at least the foreseeable future. This group definitely offers solid growth opportunities thanks to new products and services and continuing innovation. Increasing number of companies with in tech sector increased their dividend payments, which may become a larger part of total equity return in the near term. This gives an IT sector a defensive characteristic as well.
Besides, solid balance sheets with massive cash balances and relatively low debt enable the group to pursue mergers and acquisitions that may help performance by removing competition and consolidating expenses.
However, the main reasons why I see continuation of positive returns in this sector, is because it has the ability to take advantage of both sides of economy- business and consumers. Even as U.S. consumers remain somewhat more cautious in some areas when it comes to their spending, in others, like tech related items (smartphones, apps, software's etc.) they keep spending more and more.
Source: www.statista.com
By the 2021 it is estimated that the number of smartphone users in the United States will reach 222.9 million, with the number of smartphone users worldwide forecasted to exceed 2 billion users by that time. While this is just a small part of the Information Technology and its sector, it does show a good picture of where the industry is heading.
Source: www.statista.com
Sales of internet software and services were up 17.5% in the last quarter from a year earlier, while sales of wireless services grew 6.9%-both well ahead of the just-over 2% increase in general retail sales reported by the Census Bureau.
It is true that the business sector has been lagging behind for some time when it comes to tech infrastructure upgrades, however recently they started spending more as it can be seen from the chart below. Although capital spending remains relatively soft, some tech related areas are showing strength.
Source: schwab.com
This being said, here are some technology related ETFs that may continue to benefit from positive outlook in technology sector. All of them have YTD return of around 10% and are among top ETFs in technology sector when it comes to total assets. They also have good rating (above B+) according to ETFdb.
Source: ETFdb.com
Source: Finance Yahoo
Even though Technology Select Sector SPDR Fund (NYSEARCA:XLK), Vanguard Information Technology (NYSEARCA:VGT), iShares US Technology ETF (NYSEARCA:IYW), and iShares North American Tech ETF (NYSEARCA:IGM) have been moving sideways recently, they actually had a pretty good year so far. And now that election is over, I expect the sector and above mentioned ETFs to continue outperforming the rest of the market. Still investors will likely have to be ready to handle some bumps on the road ahead, given the upcoming volatility. Nevertheless staying focus on broader economic trends would be the best way to keep up with uncertainty.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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