IXN: a Bet on Big Tech with a Global Flavor
Dion Money Management, LLC | 16 Jun 2008
When the markets shuddered to start the year, tech stocks were among those hardest hit hardest, as the NASDAQ-100 Index lost more than one-quarter of its value from the end of October to mid-March.
But tech stocks, especially those of the biggest players with global reach, have been rallying since, with the big-tech index—home to many key holdings of iShares S&P 500 Global Technology—up 18.3% since March 10.
In the April 15th issue of the ETF Momentum Tracker IXN held the 31st spot for sector momentum, a place it had hovered since early February. In recent weeks, however, the fund, helped by a weak dollar and international exposure, has steadily climbed the table, claiming the 18th position in the June 10th issue.
http://store.fidelityadviser.com/fiinadetfmot.html
IXN is one of several tech funds making its way up the Sector Momentum Table of ETF Momentum Tracker. Coming off an all-time high on Nov. 2, IXN’s NAV dipped 16.3% over nearly six months, followed by a 13.7% gain since March 17 (through May 6). http://store.fidelityindependentadviser.com/etf5yr.html
ETF Momentum Tracker belongs to Fidelity Independent Adviser’s family of newsletters, whose flagship, Fidelity Independent Adviser, has been published monthly for 11 years. Don Dion, publisher of Fidelity Independent Adviser, reaches over 100,000 subscribers through his 6 monthly newsletters and three weekly newsletters, along with a variety of hotlines and updates. http://www.fidelityadviser.com/
IXN tracks the S&P Global Technology Sector Index, a subset of the S&P Global 1200. It’s market-weighted, and prone to sizable bets on the world’s biggest companies, with just less than half of its assets now earmarked to the top -10 holdings. The fund also carries an average market cap of $57.84 billion, larger than the average cap for the S&P 500. Morningstar classifies nearly two-thirds of IXN stocks as giant-cap, and nearly 90% as large-cap or bigger.
The fund spreads its holdings across a wide variety of tech sub-sectors, with a top-six consisting of giants from software (Microsoft), business services (IBM), hardware (Apple), networking and peripherals (Cisco), chips (Intel), and Internet services (Google). The top 10 even includes communications equipment giant Nokia, and a pair of stocks coming off major acquisitions (Hewlett-Packard and Oracle).
The continuing merger dance between top holding Microsoft and Yahoo has made this fund an interesting one to watch in recent weeks. Carl Ichan, who owns a 4.3% stake in Yahoo, recently rejected Microsoft’s $47.5 billion dollar bid to acquire the company in its entirety. On Thursday, Google stepped up with a subsequent deal which provides an alternative to Microsoft’s acquisition. "While the Google deal is not the same as an offer of $34.375 per share for Yahoo, I am continuing to study it, and it might have some merit," Carl Icahn told Reuters on Sunday in his first public comments on the new offer.
Ongoing volatility in Microsoft’s share price may bully IXN around in the short term. Microsoft shares are down 23% year to date, one of just two IXN top 10 holdings with a negative three-month return. Shares of Yahoo, the fund’s 21st-largest holding, are up more than 28% for three months.
The movement of IXN’s components in both directions has underscored the level of risk in the tech sector. Though the fund’s three-year standard deviation of 14.14 is the lowest low for a tech ETF—tech funds can range to 28 and beyond, and the other iShares tech funds range from 15.72 to 15.89—it’s still nearly twice that of the S&P 500, despite the fund’s giant-cap tilt.
Shareholders may view IXN as a low-risk bet on global technology, and it can be. But because it's cap-weighted, there are limits to its diversification to some extent, both in terms of stocks and geography.
Performance
IXN (NAV) vs. Category*
YTD** -2.71% +0.41
2007 +13.18% +4.99
2006 +9.43% -0.12
2005 +3.90% +2.64
2004 +2.80% -3.93
*Category: Specialty—Technology
**Through 5/31/08
Source: Morningstar
Top Ten Holdings*
Microsoft (NasdaqGS: MSFT) 7.67% International Business Machines (NYSE: IBM) 5.93% Apple (NasdaqGS: AAPL) 5.64% Cisco Systems (NasdaqGS: CSCO) 5.55% Intel (NasdaqGS: INTC) 4.73% Google (NasdaqGS: GOOG) 4.58% Hewlett-Packard (NYSE: HPQ) 4.22% Nokia (NasdaqGS: NOK1V) 3.52% Taiwan Semiconductor (NYSE: TSM) 3.16% Oracle (NasdaqGS: ORCL) 3.08%
*As of 6/5/08
Source: iShares.com
About Don Dion:
Don Dion is the publisher of the Fidelity Independent Adviser family of newsletters, which provides to a broad range of investors Don’s commentary on the financial markets, with a specific emphasis on mutual funds and exchange-traded funds. With more than 100,000 subscribers in the United States and 29 other countries, Fidelity Independent Adviser publishes six monthly newsletters and three weekly newsletters. Its flagship publication, Fidelity Independent Adviser, has been published monthly for 11 years and reaches 40,000 subscribers. http://www.fidelityadviser.com/
Mr. Dion is also president and founder of Dion Money Management, a fee-based investment advisory firm to affluent individuals, families and nonprofit organizations, where he is responsible for setting investment policy, creating custom portfolios and overseeing the performance of client accounts. Founded in 1996 and based in Williamstown, Massachusetts, Dion Money Management manages more than $850 million in assets for clients in 49 states and 11 countries. A licensed attorney in Massachusetts and Maine, Mr. Dion has more than 25 years’ experience working in the financial markets, having founded and run two publicly traded companies before establishing Dion Money Management.
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