US technology ETFs rally as tech sector bellwether Cisco (CSCO) beats expectations

Aug 20th, 2012 | By | Category: Equities

US technology sector exchange-traded funds (ETFs) rallied last week, as tech giant and sector bellwether Cisco Systems (CSCO) surged after the company reported positive earnings results and issued a cautiously upbeat financial forecast, in contrast with the company’s more pessimistic outlook three months ago.

US technology ETFs rally as tech sector bellwether Cisco (CSCO) beats expectations

US technology ETFs rallied last week as tech sector bellwether Cisco (CSCO) beat expectations and issued an upbeat outlook.

The company reported that net profit rose to $1.9 billion, a 56% increase from the quarter a year earlier, on revenue of $11.7 billion, an increase of 4%. The results exceeded analysts’ expectations and underpinned a 75% hike in the quarterly dividend.

John Chambers, Cisco’s long-standing CEO, said the computer networking giant saw an uptick in orders from big US and Asian corporations last month. Chambers added: “Now I want to say, it is way too early to call this a trend, but if this were to continue for a few months, this would be a solid indicator of potential future market improvement in the US.”

Cisco is viewed as a bellwether for the US technology industry since it is the leading supplier of network routers and switches used by businesses, government departments and telecommunications providers. In addition, Chambers himself has a reputation with analysts for having good insight into industry spending trends.

Cisco’s positive results come after S&P Capital IQ last month upgraded the technology sector to overweight, with ‘strong buy’ or ‘buy’ ratings on some 50 technology stocks.

S&P cited rising dividends, the growing cloud-computing business, soaring internet use in China, and growing markets for mobile devices such as smartphones and tablets as positive catalysts for the technology sector going forward.

As well highlighting individual stocks, S&P gave ‘overweight’ ratings to US technology sector ETFs including the Technology Select Sector SPDR (XLK) and the Vanguard Information Technology ETF (VGT), both listed on the NYSE Arca.

UK and European investors can invest in the US technology sector via a number of technology-focused ETFs listed on European exchanges including the London Stock Exchange (LSE), Deutsche Börse (Xetra),  Euronext and SIX Swiss Exchange.

The following are listed on the LSE:

Technology S&P US Select Sector Source ETF (XLKS)
The Technology S&P US Select Sector Source ETF (XLKS) tracks the S&P 500 Select Capped 20% Technology Sector Index. The index comprises the technology and telcoms companies that are members of the S&P 500 index. Each constituent is weighted by float-adjusted market capitalisation and capped at 20%. The excess weight is distributed among all the other uncapped stocks within the index. Major holdings include Apple, IBM, Microsoft, AT&T, Google, Intel, Verizon, Oracle, Qualcomm and Cisco. XLKS has a TER of 0.30%.

Amundi ETF Nasdaq 100 (ANXU)
Tracks the tech heavy Nasdaq-100 Index. The Nasdaq-100 Index includes 100 of the largest non-financial securities listed on the Nasdaq Stock Market based on market capitalisation. The index reflects companies across major industry groups including computer hardware and software, telecommunications, retail/wholesale trade and biotechnology. Pure technology companies make up two-thirds of the index. Major holdings include Apple, Microsoft, Google, Oracle, Intel, Qualcomm, Amazon.com, Cisco and Comcast. ANXU has a TER of 0.23%.

PowerShares EQQQ ETF (EQQQ)
UK version of the hugely popular PowerShares QQQ ETF (NASDAQ:QQQ) which has some $34 billion in assets. Tracks the Nasdaq-100 Index (see above).  TER 0.30%.

Credit Suisse Nasdaq 100 ETF (CNX1)
Also tracks the Nasdaq 100 Index. TER 0.33%.

For European investors, Paris-based Lyxor offers the Lyxor ETF S&P 500 Capped Technology Sector, which is listed on the Euronext and the Deutsche Börse, while the Amundi ETF Nasdaq 100 (see above) is also listed on the Euronext and SIX Swiss exchanges.

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