ETFs To Play Gartner’s 2013 IT Outlook

by on January 17, 2013 | ETFs Mentioned:

Technological innovation and development have certainly been game changers in the investment world. Last year was an active one for the technology industry, with the launch of several new Apple and Windows products, a lawsuit between two top tech firms, and the rather dreary public offering of social media giant Facebook. Despite some bumps in the road, 2012 saw a relatively high increase in global technology spending, particularly in the IT sub-sector [Download Free 7 Simple & Cheap All-ETF Portfolios].

This year, the world’s leading information technology research and advisory company Gartner came out with their predictions for the tech world in 2013. In general, Gartner believes that the industry has bright and promising year ahead of it, with worldwide IT spending forecasted to grow 4.2% to hit $3.7 trillion in 2013 and a whopping 6.7% growth in 2014. Though uncertainties surrounding the recovery of the global economy will certainly put a hamper on IT growth, analysts are confident that Americans will continue to satisfy their tech cravings and hop in on the latest trends.

Hot Ticket Item: Devices

According to Gartner, worldwide spending on devices–including PCs, tablets, mobile phones and printers–is expected to grow 6.3% in 2013, reaching $666 billion. Though there has been a sharp reduction in the forecasts for PC and tablet spending due to greater price competition, marginal increases on mobile phone and printer spending help offset the sub-sector’s figures for 2013 [see High Tech ETFdb Portfolio].

For those looking to park their money in this promising corner of the tech market, there is a vast array of broad-based technology ETFs available, which include some of the top names in the PC and tablet world.  Investors may also want to take a close look at First Trust’s NASDAQ CEA Smartphone Index Fund (FONE). This fund invests in the smartphone segment of the telecom and tech sectors, with Research In Motion (RIMM), Apple (AAPL), Nokia (NOK) and Samsung (SSNLF) making up FONE’s top holdings.

Rising Demand for Enterprise Software

On the software front, Gartner expects enterprise software to take off next year, with the highest projected growth in IT spending for 2013. This type of software, which is typically used by businesses and organizations, is expected to reign in $296 billion in spending this year, a 6.4% increase from the previous year.

There are currently only three ETFs that are specifically designed to capture the software development market:

Ticker ETF Expense Ratio Top Holding
IGV iShares S&P GSTI Software Index Fund 0.48%  Microsoft (MSFT)
PSJ Powershares Dynamic Software Portfolio 0.60% Activision Blizzard (ATVI)
XSW State Street’s SPDR S&P Software & Services ETF 0.35% AOL, Inc (AOL)

Fueled By “Pent-up” Demand: IT Services to Skyrocket

As the global economic recovery picks up steam, Gartner analysts predict that companies will finally be able to lift off the tight restraints that have been put on IT budgets in recent years. Spending in IT services is projected to come in at $974 billion this year, a 5.2% increase from 2012.

For those looking to establish a tilt towards the information technology services sector, there are several ETF options:

  • Vanguard Information Technology Index Fund (VGT)
  • PowerShares S&P SmallCap Information Technology Portfolio (PSCT)
  • iShares MSCI ACWI ex US Information Technology Sector Index Fund (AXIT)
  • MSCI All Country Asia Information Technology Index Fund (AAIT)

Telecoms Rebound

Despite experiencing significant headwinds in recent years, telecom stocks fared quite well in 2012. Gartner, however, predicts that the industry will make a significant rebound in 2013, with telecom services spending expected to reach $1.7 trillion, a 2.4% uptick from last year. Currently, there are nine exchange-traded products that offer exposure to this sub-sector of the tech market, including two leveraged options (LTL and TLL) [see Tech ETFs And CES 2013]:

Ticker ETF Expense Ratio
IXP iShares S&P Global Telecommunications Sector Index Fund 0.48%
IYZ Dow Jones U.S. Telecommunications Index Fund 0.48%
VOX Telecom ETF 0.14%
IST SPDR S&P International Telecommunications Sector ETF 0.50%
XTL SPDR S&P Telecom ETF 0.35%
LTL Ultra Telecommunications ProShares 0.95%
TGEM Telecommunications GEMS ETF 0.85%
AXTE MSCI ACWI ex US Telecommunication Services Sector Index Fund 0.48%
TLL UltraShort Telecommunications 0.95%

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Disclosure: No positions at time of writing.