The Information Technology sector ranks second out of the ten sectors as detailed in our 3Q17 Sector Ratings for ETFs and Mutual Funds report. Last quarter, the Information Technology sector ranked fourth. It gets our Neutral rating, which is based on an aggregation of ratings of 28 ETFs and 127 mutual funds in the Information Technology sector as of July 13, 2017. See a recap of our 2Q17 Sector Ratings here.
Figures 1 and 2 show the five best and worst rated ETFs and mutual funds in the sector. Not all Information Technology sector ETFs and mutual funds are created the same. The number of holdings varies widely (from 25 to 366). This variation creates drastically different investment implications and, therefore, ratings.
Investors seeking exposure to the Information Technology sector should buy one of the Attractive-or-better rated ETFs or mutual funds from Figures 1 and 2.
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
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) is excluded from Figure 2 because its total net assets (TNA) are below $100 million and do not meet our liquidity minimums.
iShares US Technology (NYSE:IYW) is the top-rated Information Technology ETF and Fidelity Select Comms Equipment Portfolio is the top-rated Information Technology mutual fund. Both earn a Very Attractive rating.
ARK Web X.0 (NYSE:ARKW) is the worst rated Information Technology ETF and Jacob Internet Fund (JAMFX) is the worst rated Information Technology mutual fund. Both earn a Very Dangerous rating.
489 stocks of the 3000+ we cover are classified as Information 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. More of the biggest names in the financial industry 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 Information 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
Disclosure: David Trainer, Kyle Guske II, and Kenneth James receive no compensation to write about any specific stock, sector or theme.