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The world's largest software maker Microsoft (MSFT - Free Report) reported encouraging fiscal fourth-quarter 2016 results. Investors reacted positively to the news with the stock gaining 5.3% in the following trading session.
The Q2 earnings season has begun on a reassuring note for the technology sector with better-than-expected earnings reports coming in from International Business Machines (IBM - Free Report) . As per Zacks Earnings Trend report, the tech sector is expected to post an earnings decline of 6.2% in the second quarter, wider than a decline of 4.5% in first-quarter 2016. However, excluding Apple (AAPL - Free Report) , the tech sector’s earnings for the second quarter would be down only 0.6% (read: 3 ETFs in Focus as IBM Posts Better-Than-Expected Q2 Results).
Microsoft Earnings in Focus
Microsoft’s earnings per share came in at 69 cents, surpassing the Zacks Consensus Estimate of 58 cents and the year-ago earnings of 62 cents. Revenues declined 7.1% year over year to $20.6 billion and fell short of the Zacks Consensus Estimate by 6.8%. Although sales suffered in the PC market, the company’s cloud services segment performed well in the quarter.
Meanwhile, the long-term outlook for the company remains promising given its transition from the traditional software business to cloud services and mobile applications including Azure, Office 365 and Dynamics CRM Online. The company is expected see acceleration in revenue and earnings over the coming quarters, driven by the cloud transition which involves lower costs.
Microsoft currently has a decent Zacks Rank #3 (Hold). However, given the encouraging earnings reported by the company, it is likely to witness smooth trading in the upcoming session. Thus, ETFs with a high exposure to this tech behemoth could benefit from the trend. Below, we have highlighted four such ETFs (see: all the Technology ETFs here).
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 138 technology stocks. The fund has AUM of $2.4 billion while charging 45 bps in fees and expenses. Volume is good as it exchanges nearly 245,000 shares in hand a day. Microsoft occupies the second position in the basket with 11.8% of assets. More than half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 27.5% share.
This is one of the popular technology ETFs following the Technology Select Sector Index and has $12.3 billion in AUM. This fund trades in heavy volume of roughly 11.1 million shares and charges 14 bps in fees per year from investors. In total, the fund holds about 75 securities in its basket. Of these firms, MSFT takes the second spot, making up roughly 9.7% of the assets. In terms of industrial exposure, the fund is widely spread across software, internet software & services, IT services, hardware storage and peripherals and diversified telecom services that make up for a double-digit allocation each (read: Why Semiconductor ETFs Are Hitting Highs).
This fund manages about $8.8 billion in its asset base and provides exposure to a large basket of 382 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is good at nearly 394,000 shares. Here, Microsoft takes the third spot with 9% allocation. The product is well spread out across a number of sectors with internet software & services, hardware, storage & peripheral, system software, data processing & outsourced services, and semiconductors accounting for a double-digit allocation each.
Fidelity MSCI Information Technology Index ETF (FTEC - Free Report)
This fund provides exposure to a large basket of 378 technology stocks with AUM of $409.2 million. This is done by tracking the MSCI USA IMI Information Technology Index. Here too, MSFT occupies the second spot with 8.9% allocation. From a sector perspective, the product is widely diversified across software, Internet software & services, IT services, technology hardware storage & peripherals, and semiconductors & semiconductor equipment with double-digit exposure each. The ETF has an expense ratio of 0.08% while volume is good at 135,000 shares a day (read: Fidelity Slashes Fees for 11 Sector ETFs).
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Will Microsoft Earnings Lift These ETFs?
The world's largest software maker Microsoft (MSFT - Free Report) reported encouraging fiscal fourth-quarter 2016 results. Investors reacted positively to the news with the stock gaining 5.3% in the following trading session.
The Q2 earnings season has begun on a reassuring note for the technology sector with better-than-expected earnings reports coming in from International Business Machines (IBM - Free Report) . As per Zacks Earnings Trend report, the tech sector is expected to post an earnings decline of 6.2% in the second quarter, wider than a decline of 4.5% in first-quarter 2016. However, excluding Apple (AAPL - Free Report) , the tech sector’s earnings for the second quarter would be down only 0.6% (read: 3 ETFs in Focus as IBM Posts Better-Than-Expected Q2 Results).
Microsoft Earnings in Focus
Microsoft’s earnings per share came in at 69 cents, surpassing the Zacks Consensus Estimate of 58 cents and the year-ago earnings of 62 cents. Revenues declined 7.1% year over year to $20.6 billion and fell short of the Zacks Consensus Estimate by 6.8%. Although sales suffered in the PC market, the company’s cloud services segment performed well in the quarter.
Meanwhile, the long-term outlook for the company remains promising given its transition from the traditional software business to cloud services and mobile applications including Azure, Office 365 and Dynamics CRM Online. The company is expected see acceleration in revenue and earnings over the coming quarters, driven by the cloud transition which involves lower costs.
Microsoft currently has a decent Zacks Rank #3 (Hold). However, given the encouraging earnings reported by the company, it is likely to witness smooth trading in the upcoming session. Thus, ETFs with a high exposure to this tech behemoth could benefit from the trend. Below, we have highlighted four such ETFs (see: all the Technology ETFs here).
ETFs in Focus
iShares U.S. Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 138 technology stocks. The fund has AUM of $2.4 billion while charging 45 bps in fees and expenses. Volume is good as it exchanges nearly 245,000 shares in hand a day. Microsoft occupies the second position in the basket with 11.8% of assets. More than half of the portfolio is allocated to software and services while technology hardware and equipment accounts for 27.5% share.
Technology Select Sector SPDR Fund (XLK - Free Report)
This is one of the popular technology ETFs following the Technology Select Sector Index and has $12.3 billion in AUM. This fund trades in heavy volume of roughly 11.1 million shares and charges 14 bps in fees per year from investors. In total, the fund holds about 75 securities in its basket. Of these firms, MSFT takes the second spot, making up roughly 9.7% of the assets. In terms of industrial exposure, the fund is widely spread across software, internet software & services, IT services, hardware storage and peripherals and diversified telecom services that make up for a double-digit allocation each (read: Why Semiconductor ETFs Are Hitting Highs).
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages about $8.8 billion in its asset base and provides exposure to a large basket of 382 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is good at nearly 394,000 shares. Here, Microsoft takes the third spot with 9% allocation. The product is well spread out across a number of sectors with internet software & services, hardware, storage & peripheral, system software, data processing & outsourced services, and semiconductors accounting for a double-digit allocation each.
Fidelity MSCI Information Technology Index ETF (FTEC - Free Report)
This fund provides exposure to a large basket of 378 technology stocks with AUM of $409.2 million. This is done by tracking the MSCI USA IMI Information Technology Index. Here too, MSFT occupies the second spot with 8.9% allocation. From a sector perspective, the product is widely diversified across software, Internet software & services, IT services, technology hardware storage & peripherals, and semiconductors & semiconductor equipment with double-digit exposure each. The ETF has an expense ratio of 0.08% while volume is good at 135,000 shares a day (read: Fidelity Slashes Fees for 11 Sector ETFs).
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