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Tech sector ETFs enter season of strength Add to ...

Thackray’s 2011 Investor’s Guide notes that the period of seasonal strength in the Technology sector based on the S&P Technology Index is from October 9th to January 17th. The trade was profitable in 14 of the past 20 periods. Average gain per period was 10.4 percent. Strength is related to strong consumer electronic sales during the Christmas season. Given the plethora of new consumer electronic products coming to market in the fourth quarter, a seasonal trade in the sector is lining up nicely again this year.

A wide variety of ETFs in the sector are available including 37 products trading on U.S. exchanges and one product trading on the Toronto Exchange.

Best known and most actively traded ETF in the sector is Technology Select Sector SPDRs sponsored by State Street. Units track a basket of technology and telecom stocks that are part of the S&P 500 Index. Management expense ratio is 0.20 percent. Top five holdings are Apple, IBM, AT&T, Google and Oracle. Inclusion of telecom stocks helped Technology SPDRs to significantly outperform sub-sector ETFs since May, 2011 when North American equity markets reached an intermediate peak.

Investors looking for a purer, more diversified play in the sector might consider the Vanguard Information Technology Index Fund . The fund holds 41 U.S. based technology and does not hold telecom stocks. Top five holdings are Apple, IBM, Microsoft, Google and Oracle. Management expense ratio is 0.24 percent.

The most actively traded technology sub-sector ETF is Semiconductor HOLDRs . Units track 18 well known U.S. listed semiconductor stocks. A word of caution: Units are highly concentrated in two stocks, Intel and Texas Instruments. Together, their weight in the portfolio is 51.1 percent. Other holdings include Applied Materials, Altera and Analog Devices. Management expense ratio is zero.

An interesting alternative for the Semiconductor sub-sector is iShares on the Philadelpia Semiconductor Sector Index . Units are backed by a diversified portfolio of 31 semiconductor stocks listed on U.S. exchanges. Top five holdings are Broadcom, Intel, Applied Materials, Texas Instruments and Altera. Management expense ratio is 0.48 percent.

The most actively traded Software sub-sector ETF is iShares S&P GSTI Software Index Fund . Units track the performance of 56 software stocks listed on U.S. exchanges. Top five holdings are Microsoft, Oracle, Salesforce.com, Symantec and Adobe Systems. Management expense ratio is 0.48 percent.

The most actively traded Internet sub-sector ETF is First Trust Dow Jones Internet Index Fund . Units track 41 internet stocks listed on U.S exchanges. Top five holdings are Google, Amazon.com, EBay, Priceline.com and Salesforce.com. Management expense ratio is 0.66 per cent.

iShares Canada offers iShares on the S&P/TSX Capped Information Technology Index . Units track a portfolio of six Canadian listed stocks. A word of caution! The portfolio is highly concentrated in CGI Group, Open Text and Research in Motion. They represent 69.7 per cent of the portfolio’s weight.

The S&P Technology Index has a mixed technical profile. Intermediate trend is down. The Index recently found resistance at its 200 day moving average. Short term momentum indicators rolled over last week with equity markets. However, strength relative to the S&P 500 Index has been strongly positive during the past month, an encouraging technical sign prior to the start of a period of seasonal strength. Preferred strategy is to wait until technical signs of a bottom have been reached before entering into a seasonal trade.

Don Vialoux is author of a free daily report on equity markets, sectors, commodities and Exchange Traded Funds. Reports are available at www.timingthemarket.ca . Mr. Vialoux also is research analyst for JovInvestment Management Inc.

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