Last week the world’s largest software maker, Microsoft Corporation (MSFT), delighted investors’ with stellar fiscal first-quarter 2017 results on continued growth in its cloud business.
This sent its shares up by as much as 6.2% to all-time highs in after-market hours on elevated volumes, adding nearly $25 billion to its market value.
With this surge, Microsoft surpassed its record set at the peak of the tech stock bubble in December 1999. This clearly shows that Satya Nadella’s efforts of turning around the business, and focusing on cloud services and mobile applications are paying off and are beneficial for the company’s future growth (read: Will Tech ETFs Continue Their Rally in Q3 Earnings?).
Microsoft in Focus
Earnings per share came in at 76 cents per share, easily outpacing the Zacks Consensus Estimate of 68 cents and improving 9% from the year-ago quarter. Revenues rose 2% year over year to $22.3 billion topping our estimate of $21.5 billion.
The outperformance was credited to the strength in the cloud business, particularly Azure, whose sales more than doubled from the year-ago period. Investors should note that Microsoft’s cloud business saw sales of over $13 billion at the end of the fiscal first quarter and is on track to reach $20 billion in fiscal 2018.
Another boost to the stock price came when the company reiterated its plan to close the $26.2 billion acquisition of LinkedIn Corp (LNKD) by the end of this year. Microsoft currently carries a Zacks Rank #3 (Hold) and boasts a solid Zacks Industry Rank in the top 44% with a VGM Style Score of C.
ETF Opportunities in Focus
Investors’ seeking to participate in the company’s growing mobile and cloud computing business could definitely look into the ETF world for lower risk. While there are several ETF options currently available in the market, we have highlighted 10 technology ETFs that have the largest exposure to this software leader (see: all the Technology ETFs here).
iShares Dow Jones US Technology ETF (IYW)
This ETF tracks the Dow Jones US Technology Index, giving investors exposure to 141 technology stocks. The fund has AUM of $2.9 billion while charging 44 bps in fees and expenses. Volume is good as it exchanges nearly 247,000 shares in hand a day. Microsoft occupies the second position in the basket with 11.9% of assets. The fund has a Zacks ETF Rank of 1 or ‘Strong Buy’ rating with a Medium risk outlook.
SPDR Technology ETF (XLK)
This most popular technology ETF follows the Technology Select Sector Index and has over $13 billion in AUM. This fund trades in heavy volume of more than 9.2 million shares and charges 14 bps in fees per year. In total, the fund holds about 74 securities in its basket with MSFT taking the second spot at 10% of the assets. XLK has a Zacks ETF Rank of 1 with a Medium risk outlook.
Vanguard Information Technology ETF (VGT)
This fund manages about $9.9 billion in its asset base and provides exposure to 373 technology stocks by tracking the MSCI US Investable Market Information Technology 25/50 Index. The ETF has 0.10% in expense ratio while volume is good at nearly 365,000 shares. Here, Microsoft takes the third spot with 9.1% allocation. It has a Zacks ETF Rank of 1 with a Medium risk outlook (read: Top-Ranked Sector ETFs & Stocks for Q4).
MSCI Information Technology Index ETF (FTEC)
This fund is home to 368 technology stocks with AUM of $473.2 million and follows the MSCI USA IMI Information Technology Index. Here too, MSFT is the second firm with 9.1% allocation. The ETF has 0.08% in expense ratio while volume is good at 103,000 shares a day. It has a Zacks ETF Rank of 3 or ‘Hold’ rating with a Medium risk outlook.
iShares Global Tech ETF (IXN)
This product provides broad exposure to technology stocks from around the world by tracking the S&P Global 1200 Information Technology Sector Index. Holding 111 stocks in its basket, Microsoft occupies the second spot with 8.8% share. American firms dominate the fund’s portfolio at 76.4% while software and services accounts for more than half of it from a sector look. The ETF has amassed $851.7 million in its asset base but trades in a lower volume of less than 30,000 shares a day on average. Expense ratio came in at 0.48%.
iShares North American Tech-Software ETF (IGV)
This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 57 securities with Microsoft occupying the second spot at 8.6% of total assets. It is quite popular with AUM of $743.4 million while volume is good as it exchanges nearly 243,000 shares a day. The product charges 48 bps in annual fees and has a Zacks ETF Rank of 3 with a High risk outlook (read: 4 Best ETFs & Stocks to Tap the Tech Boom).
iShares North American Tech ETF (IGM)
This ETF tracks the S&P North American Technology Sector Index, giving investors exposure to 267 electronics, computer software and hardware, and informational technology companies. Microsoft occupies the second position in the basket with 8.4% share. The fund has AUM of $976.3 million and charges 48 bps in annual fees. It trades in light volume of nearly 35,000 shares in hand a day and has a Zacks ETF Rank of 1 with a Medium risk outlook.
iShares Edge MSCI Multifactor Technology ETF (TCHF)
This ETF has newly debuted in the space and has attracted $2.9 million in its asset base within six months. It trades in a meager volume of 200 shares. It targets companies that have the potential to outperform the broad U.S. technology sector and tracks the MSCI USA Information Technology Diversified Multiple-Factor Capped Index. Holding 43 stocks in its basket, Microsoft is the second firm accounting for 8% of the portfolio. TCHF charges 35 bps in fees per year.
First Trust NASDAQ Technology Dividend Index Fund (TDIV)
This fund provides exposure to the dividend payers in the technology sector by tracking the Nasdaq Technology Dividend Index. It has amassed about $576.8 million in its asset base and trades in moderate volume of about 78,000 shares per day. The ETF charges 50 bps in annual fees and holds about 98 securities in its basket. Of these firms, MSFT occupies the second position, making up roughly 8% of the assets (read: Technology Dividend ETFs for Growth & Income).
John Hancock Multifactor Technology ETF (JHMT)
This fund focuses on the time-tested multifactor approach that emphasize factors (smaller cap, lower relative price, and higher profitability) that academic research has linked to higher expected return. It follows the John Hancock Dimensional Technology Index, holding 120 stocks. Out of these, Microsoft takes the top spot at 6%. The fund has accumulated $27 million in AUM while charging 50 bps in fees per year. Volume is light at under 3000 shares a day. JHMT has a Zacks ETF Rank of 3 with a High risk outlook.
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