For this post, I would like to share an investment idea. Please note that this post is solely my own personal opinion and I wrote it for educational purpose and I am by no means recommending this ETF. Do do your own due diligence and consult your own personal financial adviser.
I want to share about this particular ETF – Shares North American Tech-Software ETF (IGV US)
For those of you who are new to ETFs. When you buy an ETF, basically you are buying a basket of stocks. This is a great diversification strategy and a more cost effective way of owning many stocks.
Software spending is in secular uptrend. US President Donald Trump’s tax cuts and general pro-business policies, have boosted CEO confidence, generally a precursor of increased spending on software by US companies. The iShares North American Tech-Software ETF (IGV US) gives investors exposure to a broad range of software companies. Besides including heavy-weights like Microsoft and Adobe, the ETF also invests in medium cap companies, giving investors access to a fair amount of lesser-known, potentially high growth firms.
Things you need to know
Software is a secular growth story. Only the Great Recession of 2008-2010 derailed US software spending. Otherwise, there has been a consistent pattern of increasing sale, increasing at a faster rate than GDP. The cloud has changed software companies. Firstly, large software firms like Microsoft (MSFT US) and Oracle (ORCL US) have seen selling cloud services as an opportunity. Microsoft’s cloud business, Azure, was up 56% year on year in Q4. The cloud has also changed the way software is sold, from traditional license and maintenance to subscription. At first, this was seen as challenge for software companies. They no longer get the large upfront licensing fees. But now, the cloud is viewed as a positive for vendors. They can now sell more services to the clients. Marketing expenses are lower when software is sold via the cloud. Time to market is cut. The largest increases in growth and profit occur when a new software product is introduced. The ETF has a large exposure to medium sized companies, giving investors access to firms with potentially higher growth. China is not a major market for US software companies. That makes them relatively immune to the effect of a US trade war with China. The IGV ETF is up 12.74% year-to-date, handily outperforming the S&P 500.
Top 10 Holdings (as of 2 May 2018)
ADOBE SYSTEM INC
ACTIVISION BLIZZARD INC
ELECTRONIC ARTS INC
RED HAT INC
As you can see from the top 10 holdings above, when you buy into this ETF, you are actually owning quite a number of good quality companies. If you believe in this investment theme and want exposure to this sector, iShares North American Tech-Software ETF will be something worth considering. However, timing your entry will be important and this is where technical analysis will come into play. This is where you should learn technical analysis and incorporate it into your investment framework.