After a strong earnings report from Intel on Tuesday (the company beat the Street’s estimates by seven cents) all eyes will now be on IBM and Google to see if they carry the positive momentum into the fourth quarter. Confirmation of a recovery by these two bellwethers will add further confidence to those who believe in the market rally, while poor reports will probably lead to a tech selloff as traders lock in their gains from earlier this week. Below is a list of ETFs that have large positions in both IBM and Google that could see big movements following the announcements:
For a full list of Technology ETFs, click here
iShares S&P North American Technology Fund (IGM)
IGM holds companies based in the United States and Canada that focus on computers, semiconductors, and telecommunications. Both Google and IBM find themselves in the fund’s top five holdings (5th and 3rd respectively) . The fund has an above average P/E of over 27 and an expense ratio of 0.48%. Although the fund has more than 200 holdings, it is focused on high-tech behemoths such as Microsoft, Apple, and Cisco, which round out the top five largest holdings of the fund.
iShares Global Technology Fund (IXN)
IXN is very similar to its North American Technology fund counterpart except for a few key differences. First off, while the fund does have a similar weighting in both Google and IBM, this fund is much more concentrated in technology hardware and software with a minimal weighting towards telecommunications. The fund is also (not surprisingly) much more geographically diversified, with just over one quarter of its holdings in international stocks. Most international holdings are in Japanese equities and borderline developed Asian countries such as Taiwan and South Korea.
Vanguard Information Technology Fund (VGT)
As with most Vanguard Funds, this Technology ETF does a great job at keeping expenses down; its expense ratio comes in at 0.25%, making it the lowest in the category. The fund also has one of the highest percentage weightings to Google and IBM (a combined 13.2%). This ETF also offers deep exposure to the tech sector, with more than 400 individual holdings. VGT also has one of the higher P/Es at well over 30, compared to the low and mid twenties for the rest of the sector.
iShares Dow Jones US Technology Fund (IYW)
This fund is very similar to IXN in its weightings towards technology hardware and software. IYW is also one of the more concentrated funds in the sector with the top five holdings (including Google and IBM) comprising nearly 43% of the portfolio. Like the other two funds from iShares, this fund maintains an expense ratio of 0.48%.
Technology Select Sector SPDR (XLK)
Of the five funds profiled here, this is the only one that does not have both Google and IBM in its top five holdings. This SPDR has a generous weighting in AT&T (8.3%) and has one of the fewest total number of holdings at 85. Its expense ratio of 21 basis points in the lowest in the category. XLK has more than two-thirds of its assets in giant cap stocks with the average market cap coming in at $62 billion.
An option for investors looking to avoid Google but but gain exposure to IBM and other hardware related firms is the Merrill Lynch Internet Architecture HOLDR (IAH). Like most HOLDRs, this fund is very concentrated with 32.5% being allocated to Big Blue. Other double digit holdings include Hewlett-Packard (22.45%) and Cisco (12.75%).
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Disclosure: No positions at time of writing.
Update 11:00 AM 10/16/09
Google reported earnings of $5.13 which was a 27% increase from 3Q 2008. Also, Google’s third-quarter revenue rose 8 percent from the second quarter; the biggest sequential quarterly increase since the end of 2007. This pushed shares up over $22 or 4.5%. For the complete story on the earnings for GOOG click here.
Meanwhile, IBM shares were down 5% in early Friday trading as the company posted a slip in sales for some of its largest business units. IBM however, managed to grow earnings in the third quarter by 14% and raise their full year outlook.