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The technology sector has been broadly mixed so far this year due to uncertainty surrounding some of the top tech players and weak global information technology spending. The latest Q2 results were also soft, with the earnings beat ratio coming in at 77% and the revenue beat ratio hitting just 57.4% (read: Forget Big Tech; Buy These ETFs Instead). 
Beyond these results, this corner of the market will be in focus this week due to some acquisition talks that could provide a boost to the broad space. The major catalyst is Microsoft (MSFT - Free Report) , which is looking to acquire Nokia’s (NOK - Free Report) core cellphone business for €5.4 billion ($7.2 billion).  
Microsoft-Nokia Deal in Detail
The possibility of a deal between Microsoft and Nokia came as no surprise. Nokia is the only manufacturer that has exclusive rights to use Microsoft’s Windows Phone 8 operating system in its smartphones. Meanwhile, Microsoft’s Windows Phone is struggling to gain significant market share over the past couple of years from its two powerful rivals, Google’s (GOOG) Android and Apple’s (AAPL) iPhones.  
The transaction would be accretive to both the companies and will likely close in the first quarter of 2014, subject to regulatory approvals. Upon completion, Microsoft will obtain the Asha brand and 10-year license for the Nokia brand (read: 3 Internet ETFs Leading the Tech World Higher).
The deal would strengthen the competitive position and would add revenue streams and profit opportunities for Microsoft. For example, Microsoft’s gross margin on sale of one Nokia handset would increase from the current $10 to $40.
ETFs to Watch
A number of technology ETFs are currently under pressure due to lackluster performances by big tech firms and huge loses made in the latest earnings season. The recent move by MSFT could erode some of the losses in the overall space as many ETFs have large allocations to this company (see: all the Technology ETFs here).
Below, we have highlighted three popular tech ETFs that are heavily invested in this technology company and are thus in focus this week. Investors should closely monitor the movement in these funds and could catch the opportunity when it arises:
Select Sector SPDR Technology ETF (XLK - Free Report)
The most popular technology ETF on the market, XLK follows the Technology Select Sector Index, and has amassed about $11.3 billion in its asset base. The fund charges 18 bps in fees per year from investors.
In total, the fund holds about 78 securities in its basket. Of these firms, AAPL takes the first spot with 15.14% of the total assets, MSFT comes in second with 8.31%, with GOOG and International Business Machines (IBM) following at 7.54% and 6.29%, respectively (read: Tech ETFs Slump on Microsoft Earnings Miss).
In terms of industrial exposure, the fund is widely spread across computer & peripherals, IT services, software, diversified telecom services, and Internet software & services that make up for double-digit allocations in the fund.
The fund returned about 4.7% so far this year. XLK currently has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘Medium’ risk outlook.
iShares Dow Jones US Technology ETF (IYW - Free Report)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to the broad technology space. The fund holds 133 stocks in its basket with AUM of $2.3 billion while charging 46 bps in fees and expenses.
The top three holdings are AAPL, MSFT and GOOG with a respective share of 18.14%, 9.95% and 8.99%, respectively. The product is heavily skewed towards the technology hardware and equipment segments, as these make up for more than half of the portfolio. Software and computer services take the remaining portion in the basket (see more in the Zacks ETF Center).
The fund added 9.4% in the year-to-date period. The product has a Zacks ETF Rank of 3 or ‘Hold’ with a ‘High’ risk outlook.
Vanguard Information Technology ETF (VGT - Free Report)
This fund manages a $3.5 billion asset base and provides exposure to a large basket of 417 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index.
Again here, AAPL is the top firm with 12% share, followed by MSFT (8.9%), GOOG (7.6%) and IBM (6.5%). From a sector perspective, system software, Internet software & services and computer hardware take the largest share with at least 14% each.
VGT gained 12.41% year-to-date. The ETF has a Zacks ETF Rank of 1 or ‘Strong Buy’ with a ‘Low’ risk outlook, and thus could be a solid pick for investors seeking to play the tech sector this year (read: Buy This Top Ranked Tech ETF Now).

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