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Microsoft Drops Despite Earnings Beat: Tech ETFs to Watch

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After the closing bell on Wednesday, the world's largest software maker Microsoft (MSFT - Free Report) topped both revenue and earnings estimates when it reported fiscal second-quarter 2019 results.

Earnings per share came in at $1.10, outpacing the Zacks Consensus Estimate by a penny and improving 15% from the year-ago quarter. Revenues rose 12% year over year to $32.47 billion, topping the estimate of $32.45 billion. The outperformance reflects the company’s success in shifting its business toward Internet-based computing, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has become a major source of growth (see: all the Technology ETFs here).

However, cloud computing business is witnessing a slowdown growth. Azure sales grew 76% in the fiscal second quarter, on par with growth of 89% in the previous quarter but down from the 98% growth in the year-ago quarter. Sales of Office 365 Commercial and Dynamic 365 climbed 34% and 51%, respectively.

Despite the beat, shares of Microsoft slipped more than 4% in after-market hours on concerns about slowing cloud-services growth. Currently, Microsoft carries a Zacks Rank #3 (Hold) and has a VGM Score of C. It falls under a top-ranked Zacks industry (top 31%).

ETFs in Focus

The sluggish trading could have a huge impact on ETFs that are heavily invested in this software leader. Below we have highlighted six ETFs with a double-digit exposure to Microsoft that could see some losses in today’s trading session and are in focus post MSFT earnings.

Select Sector SPDR Technology ETF (XLK - Free Report)

This most-popular technology ETF follows the Technology Select Sector Index and has $17.5 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 16.9 million shares a day on average. It holds about 68 securities in its basket, with Microsoft occupying the top position at 18.1%. It has a Zacks ETF Rank #1 (Strong Buy) 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 151 technology stocks. Of these, Microsoft occupies the top position in the basket with 15.7% of assets. The fund has AUM of $3.6 billion and charges 43 bps in fees and expenses. Volume is good as it exchanges nearly 225,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook (read: Top-Ranked Sector ETFs & Stocks to Buy for 2019).

Vanguard Information Technology ETF (VGT - Free Report)

This fund manages about $17 billion in its asset base and provides exposure to 323 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here, MSFT takes the second spot with 14.8% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 792,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF (FTEC - Free Report)

This fund is home to 314 technology stocks with AUM of $1.9 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the second firm with a 14.3% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 545,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook (read: Apple Rallies on Earnings Beat: Top-Ranked Tech ETFs to Buy).

iShares Global Tech ETF (IXN - Free Report)

This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 115 stocks in its basket, Microsoft occupies the top spot with 14.1% share. American firms dominate the fund’s portfolio at 77.8%. The ETF has amassed $2.3 billion in its asset base but trades in a good volume of 126,000 shares a day on average. Expense ratio came in at 0.47%.

iShares Evolved U.S. Technology ETF (IETC - Free Report)

This is an active ETF, having accumulated $4.9 million in its asset base so far. It employs data science techniques to provide exposure to 234 technology stocks. Microsoft is the top firm with 13.4% allocation. IETC currently trades in a light volume of 6,000 shares and charges 18 bps in annual fees.

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