5 Massive Trends Firing Up Technology Stocks In 2016

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Written by Ky Trang Ho ,CONTRIBUTOR

I cover investing strategies and trends in ETFs and mutual funds.

12/20/15

Technology stocks outperformed the stock market this year. Some massive trends should continue firing up the tech sector in 2016 and beyond.

The Technology Select Sector SPDR exchange-traded fund (XLK) and Vanguard Information Technology ETF (VGT) — the two largest tech ETFs — both returned about 3% in this year while the SPDR S&P 500 ETF (SPY) lost 0.7%, according to Morningstar. The biggest drivers in both ETFs were Microsoft (MSFT), +19% gain year to date; Facebook (FB), +33%; and Alphabet (GOOGL), +43%. Apple (AAPL), the biggest holding in both ETFs, shed 2%.

First Trust Dow Jones Internet ETF (FDN) rallied an eye-popping 21% this year. In addition to Facebook (FB) and Alphabet (GOOGL), it has to thank Amazon (AMZN) and Netflix (NFLX) for its outsized pop. The online retailer and video streaming service rocketed a mind-blowing 114% and 142%, respectively, in 2015.

iShares North American Tech-Software (IGV) surged 10% this year. Microsoft (MSFT), +19% year to date; Adobe (ADBE), + 26%; and Salesfore.com (CFM), +30%, led the charge.

Based on fourth-quarter estimates and actual results earlier this year, the technology sector’s sales growth was almost nonexistent at +0.1%, according to FactSet. But it was superior to the S&P 500 (SPY)’s, 3.4% dip. The tech sector is on track to grow earnings by 3.5% for 2015 while S&P 500 (SPY) earnings fall 0.5% .

A part of the tech sector’s earnings growth can be attributed to share buybacks. Repurchases reduce the number of shares outstanding over which earnings are divided, thereby increasing earnings per share.

 

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