Technology Sector 1Q18: Best and Worst

The Technology sector ranks third out of the 11 sectors as detailed in our 1Q18 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Technology sector ranked third as well. It gets our Neutral rating, which is based on an aggregation of ratings of 42 ETFs and 127 mutual funds in the Technology sector as of January 9, 2018. See a recap of our 4Q17 Sector Ratings here.

Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Technology sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 20 to 370). This variation creates drastically different investment implications and, therefore, ratings.

Investors seeking exposure to the Technology sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.

Our Robo-Analyst technology empowers our unique ETF and mutual fund rating methodology, which leverages our rigorous analysis of each fund’s holdings.[1] We think advisors and investors focused on prudent investment decisions should include analysis of fund holdings in their research process for ETFs and mutual funds.

Figure 1: ETFs with the Best & Worst Ratings – Top 5

* Best ETFs exclude ETFs with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

iShares Edge MSCI Multifactor Technology ETF (TCHF), John Hancock Multifactor Technology ETF (JHMT), and First Trust NASDAQ Semiconductor ETF (FTXL) are excluded from Figure 1 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

Figure 2: Mutual Funds with the Best & Worst Ratings – Top 5

* Best mutual funds exclude funds with TNAs less than $100 million for inadequate liquidity.

Sources: New Constructs, LLC and company filings

Fidelity Advisor Communications Equipment Fund (FDMIX) and ICON Information Technology Fund (ICTEX) are excluded from Figure 2 because their total net assets (TNA) are below $100 million and do not meet our liquidity minimums.

State Street Technology Select Sector SPDR (XLK) is the top-rated Technology ETF and Fidelity Select Communication Equipment Portfolio (FSDCX) is the top-rated Technology mutual fund. Both earn a Very Attractive rating.

ARK Innovation ETF (ARKK) is the worst rated Technology ETF and Wells Fargo Specialized Technology Fund (WSFTX) is the worst rated Technology mutual fund. Both earn a Very Unattractive rating.

427 stocks of the 3000+ we cover are classified as Technology stocks.

The Danger Within

Buying a fund without analyzing its holdings is like buying a stock without analyzing its business and finances. Put another way, research on fund holdings is necessary due diligence because a fund’s performance is only as good as its holdings’ performance. Don’t just take our word for it, see what Barron’s says on this matter.

PERFORMANCE OF HOLDINGs = PERFORMANCE OF FUND

Analyzing each holding within funds is no small task. Our Robo-Analyst technology enables us to perform this diligence with scale and provide the research needed to fulfill the fiduciary duty of care. More of the biggest names in the financial industry (see At BlackRock, Machines Are Rising Over Managers to Pick Stocks) are now embracing technology to leverage machines in the investment research process. Technology may be the only solution to the dual mandate for research: cut costs and fulfill the fiduciary duty of care. Investors, clients, advisors and analysts deserve the latest in technology to get the diligence required to make prudent investment decisions.

Figures 3 and 4 show the rating landscape of all Technology ETFs and mutual funds.

Figure 3: Separating the Best ETFs From the Worst ETFs

Sources: New Constructs, LLC and company filings

Figure 4: Separating the Best Mutual Funds from the Worst Mutual Funds

Sources: New Constructs, LLC and company filings

This article originally published on January 10, 2018.

Disclosure: David Trainer and Kyle Guske II receive no compensation to write about any specific stock, sector or theme.

Follow us on Twitter, Facebook, LinkedIn, and StockTwits for real-time alerts on all our research.

[1] Ernst & Young’s recent white paper “Getting ROIC Right” proves the superiority of our holdings research and analytics.

Click here to download a PDF of this report.

 

Leave A Response

* Denotes Required Field