Technology ETFs rally on Google earnings

Jul 21st, 2015 | By | Category: Equities

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Technology ETFs enjoyed a steady rally last week, culminating in a strong surge on Friday owing to better-than-expected earnings from internet giant Google. The PowerShares EQQQ Nasdaq-100 UCITS ETF (EQQQ), which tracks the tech-heavy Nasdaq 100 Index, was helped to a record high on Friday after gaining 5.1% over the week. Technology stocks – and thus ETFs linked to them – have fared relatively well this year, backed by strong fundamentals, including solid Q1 earnings numbers.

Technology ETFs poised to rally on upcoming earnings reports

Google’s better-than-expected Q2 earnings report powered technology ETFs, such as the PowerShares Nasdaq ETF, higher on Friday.

Google’s Q2 earnings powered the stock to a 16.8% gain on Friday, adding a record $65bn to the firm’s market capitalisation in just one day. “Our strong Q2 results reflect continued growth across the breadth of our products, most notably core search, where mobile stood out, as well as YouTube and programmatic advertising”, said Ruth Porat, CFO of Google.

The Google surge capped a successful week for US-based technology ETFs. The SPDR S&P US Technology Select Sector UCITS ETF (SXLK), which tracks technology and telecommunications constituents of the US blue-chip S&P 500 Index, ended the week 3.8% higher.

Microsoft and Apple are due to post Q2 earnings reports on Tuesday. With excitement building around the technology sector over the last week, heightened by Google’s blockbuster results on Friday, an impressive report from either of these companies could be enough to trigger a further rally in technology-based ETFs.

Apple could easily provide this spark; the iPhone 6 is expected to show robust sales figures and the Apple Watch, although not creating the type of buzz caused by the innovation of the iPhone, has apparently secured 2.5 million orders in the US alone. Further to this, sales from the Apple Global App Store were 70% higher than revenue from Google Play in Q1, indicating the tech giant is stealing market share in the app market. Apple has also re-ignited media interest with their ambitious plan to revolutionise the global online music industry.

Facebook is due to post its results on July 29th. Strong results are expected for the social media company, having established itself as a mobile advertising goliath, as well as beginning to rival YouTube in digital video. This string of announcements could help CNDX and SXLK trend higher for the remainder of the month.

SXLK trades on the London Stock Exchange in USD and on the Deutsche Borse in EUR. The main holdings of the fund currently include Apple (17.8%), Microsoft (9.0%), Google A shares (4.8%), Facebook (4.8%) and Verizon (4.7%), making this ETF ideal for those investors wishing to make an active bet on the earnings momentum in the technology sector. The total expense ratio is 0.15%.

Institutional investors looking for a more diversified exposure to the US technology industry may consider the US-domiciled, NYSE Arca-listed Guggenheim S&P 500 Equal Weight Technology ETF (RYT). This fund currently has 67 stocks within its portfolio, re-weighting the constituents to equal proportions on a quarterly basis. The total expense ratio is 0.4%.

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