Is it worth investing in the US iShares Technology ETF (IYW)?

Are you looking for broad exposure to technology – a broad segment of the stock market? You should consider iShares US Technology ETF (IYW), a passively managed, exchange-traded fund launched on May 15, 2000.

An increasingly popular option among retail and institutional investors, passively managed ETFs offer low costs, transparency, flexibility and tax efficiency; they are also a great tool for long-term investors.

Sector ETFs are also convenient funds that offer many ways to gain low risk and diversified exposure to a wide range of companies in specific sectors. Technology – Broad is one of the 16 broad Zacks Industry Sectors. It currently ranks 11th, at a low of 31%.

Index details

The fund’s sponsor is Blackrock. It has accumulated assets of more than $17.46 billion, making it one of the largest ETFs trying to match the performance of the broad segment of the stock market. IYW strives to match the performance of the Dow Jones US Technology Index before fees and expenses.

The Russell 1000 Technology RIC 22.5/45 Capped Index includes companies in the following sectors: computer software and services and technology hardware and equipment. The index is capitalization-weighted and includes only technology companies included in the Dow Jones US Total Market Index.

Costs

When considering an ETF’s total return, expense ratios are an important factor, and cheaper funds can significantly outperform their more expensive counterparts over the long term if all other factors remain constant.

The annual operating costs of this ETF are 0.40%, making it one of the cheaper products on the market.

Its trailing 12-month dividend yield is 0.22%.

Sector exposure and largest assets

While ETFs offer diversified exposure, which minimizes single-stock risk, taking an in-depth look at a fund’s holdings is a valuable exercise. Most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has the largest allocation to the information technology sector, at approximately 89% of the portfolio. The top three are completed by telecommunications and industry.

Looking at individual holdings, Microsoft Corp (MSFT) accounts for about 18.36% of total assets, followed by Apple Inc (AAPL) and Nvidia Corp (NVDA).

The 10 largest holdings account for approximately 65.01% of total assets under management.

Performance and risk

Year-to-date, the iShares US Technology ETF has increased by approximately 15.37% so far, and has increased by approximately 37.52% over the last 12 months (as of May 28, 2024). Over the last 52 weeks, IYW has traded between $101.31 and $141.54.

The ETF has a beta of 1.15 and a standard deviation of 25.87% for the trailing three-year period, making it a medium-risk pick in this area. Holding approximately 136 shares, it effectively diversifies company-specific risk.

Alternatives

The IShares US Technology ETF carries a Zacks ETF Rank #1 (Strong Buy), which is based on asset class expected return, expense ratio and momentum, among other factors. For this reason, IYW is a unique option for investors seeking exposure to the technology ETF market segment. There are other additional ETFs on the market that investors may also consider.

The Technology Select Sector SPDR ETF (XLK) tracks the Technology Select Sector Index and the Vanguard Information Technology ETF (VGT) tracks the MSCI US Investable Market Information Technology 25/50 Index. The Technology Select Sector SPDR ETF has $66.72 billion in assets and the Vanguard Information Technology ETF has $68.94 billion. XLK has an expense ratio of 0.09% and a VGT fee of 0.10%.

Bottom line

To learn more about this product and other ETFs, find products that match your investment goals, and read articles on the latest developments in the world of ETF investing, visit the Zacks ETF Center.

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