The market is showing signs of relief as the major indices have experienced some great up days despite a lack of positive news regarding our economy. As an investor, you maybe wondering what your options are to return to the equity market with as much prudence as possible. The first thing to note is that the IT S&P 500 Component has done extremely well, up 11.80% YTD. A great way to re-enter IT is through the purchase of well constructed Exchange Traded Funds (ETFs). ETFs are a great way to capture the upside potential of various companies while maintaining diversity within your IT portfolio (or any portfolio). The key to ETF evaluation is to select low cost and well constructed ETFs making it important to conduct due diligence on the major underlying securities of the vehicle. ETFs can be a great short to medium term security to enter during volatile environments to maintain exposure to certain companies. I have been looking at a few technology ETFs and have compiled a list of the best three and provided some analysis regarding their holdings and future outlook.
Powershares Dynamic Software (PSJ)
A good play in the current market conditions, PSJ offers investors many opportunities for those looking to get into benefit from the upside of several software companies while diversifying against weak performance. Since ETFs have a unique attribute and generally always trade around NAV, there is little opportunity to buy at such a discount to this value. It is important to analyze the major holdings and see their growth prospects going forward. The top 3 holdings of the ETF are: BMC Software (BMC), Symantec (SYMC), and Intuit (INTU), all of who are strong names in their respective sub-sectors. It is important to analyze the ETF’s underlying holdings since the ETF derives much of it’s value from their performance.
BMC Software is a great middle market business service management provider that helps companies manage the inefficiencies from their heterogeneous IT systems that are decentralized. Although this does go against the centralized cloud computing trend, this model is still widespread and requires companies to implement systems that can help reduce risks from information systems and improve IT investments. BMC Software is used by approximately 85% of the Fortune 500, and it is likely that this number will continue to grow. BMC has great management that has improved margins and struck partnerships with the likes of IBM (IBM), Oracle (ORCL), and Microsoft (MSFT) whose products serve as a platform for BMC.
Symantec is a leader in software security, serving investors exposure to one of the most important industries in IT today. As governments and institutions become targets of increasingly more malice attacks for sensitive data and personal information, Symantec will stand to gain. It is important to invest in companies such as Symantec who can battle the growing cyberterrorism problem. Symantec, like other security software providers makes money from selling its software and license renewals.
