Back to top

Image: Bigstock

Tech ETFs to Soar on Microsoft's Blockbuster Earnings Beat

Read MoreHide Full Article

After the closing bell on Thursday, the world's largest software maker Microsoft (MSFT - Free Report) delighted investors with stellar fiscal first-quarter 2018 results on strong performance in its fast-growing cloud business. Earnings per share came in at 84 cents, easily surpassing the Zacks Consensus Estimate and the year-ago earnings of 72 cents each. Revenues rose 12% year over year to $24.5 billion topping our estimate of $23.5 billion.

The outperformance was credited to the strength in the cloud business, particularly Azure, sales of which grew 90% from the year-ago period, and a 42% increase in Office 365 subscriptions. This clearly shows that Satya Nadella’s efforts of turning around the business, and focusing on the cloud business, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform, are paying off.

Notably, the cloud business unit hit an annualized rate of $20.4 billion in sales, the milestone that Satya Nadella set just two years ago (read: Why Cloud ETFs Could Soar Ahead).

Following robust results, shares of Microsoft rose more than 4% in after-market hours on elevated volumes. Currently, Microsoft carries a Zacks Rank #3 (Hold) and belongs to a solid Zacks Industry Rank in the top 31%, suggesting that it has room for upside in the days ahead.

ETFs in Focus

Investors’ seeking to bet on this software leader with lower risk could definitely look into the ETF world. While there are several ETF options available in the market, we have highlighted seven technology ETFs that have the largest exposure to Microsoft and a Zacks ETF Rank #1 (Strong Buy) or #2 (Buy), suggesting smooth trading ahead.

iShares Dow Jones US Technology ETF (IYW - Free Report)

This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 142 technology stocks. Out of these, Microsoft occupies the second position in the basket with 12.4% of assets. The fund has AUM of $3.7 billion while charging 44 bps in fees and expenses. Volume is good as it exchanges nearly 189,000 shares in hand a day. The product has a Zacks ETF Rank #1 (read: FAANMG ETFs to Buy Ahead of Q3 Earnings).
   
Select Sector SPDR Technology ETF (XLK - Free Report)


This most popular technology ETF follows the Technology Select Sector Index and has $18.4 billion in AUM. This fund trades in heavy volume of more than 10 million shares and charges 14 bps in fees per year. In total, the fund holds about 72 securities in its basket with MSFT taking the second spot accounting for 10.7% of the assets. It has a Zacks ETF Rank #2.

Vanguard Information Technology ETF (VGT - Free Report)

This fund manages about $15.5 billion in its asset base and provides exposure to 361 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT takes the third spot with a 9.4% share. The ETF has 0.10% in expense ratio while volume is solid at nearly 458,000 shares. It has a Zacks ETF Rank #2.

MSCI Information Technology Index ETF (FTEC - Free Report)

This fund is home to 359 technology stocks with AUM of $1.2 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with 9.5% allocation. The ETF has 0.08% in expense ratio while volume is good at 190,000 shares a day. It has a Zacks ETF Rank #2 (see: all the Technology ETFs here).

iShares North American Tech ETF (IGM - Free Report)

This ETF tracks the S&P North American Technology Sector Index, giving investors exposure to 283 electronics, computer software and hardware, and informational technology companies. Microsoft occupies the top position in the basket with 8.6% share. The fund has AUM of $1.3 billion and charges 48 bps in annual fees. It trades in a light volume of nearly 28,000 shares in hand a day and carries a Zacks ETF Rank #2.

iShares North American Tech-Software ETF (IGV - Free Report)

This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 57 securities with Microsoft occupying the second spot at 8.7% of total assets. It is quite popular with AUM of $1.1 billion while volume is good as it exchanges nearly 171,000 shares a day. The product charges 48 bps in annual fees and sports a Zacks ETF Rank #1.

iShares Edge MSCI Multifactor Technology ETF

This ETF has attracted $5.8 million in its asset base since its debut in May last year and trades in a meager volume of about 1000 shares. It targets companies that have the potential to outperform the broad U.S. technology sector and tracks the MSCI USA Information Technology Diversified Multiple-Factor Capped Index. Holding 43 stocks in its basket, Microsoft is the second firm accounting for 8.4% of the portfolio. TCHF charges 35 bps in fees per year and has a Zacks ETF Rank #2 (read: 5 Overlooked Tech ETFs Crushing XLK).

Want key ETF info delivered straight to your inbox?

Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>

Published in