This week's featured ETF is 1nvest S&P500 Info Tech Index Feeder Fund (JSE:ETF5IT). This ETF is suitable for investors who seek exposure to offshore info tech stocks.
To know the investment approach and the portfolio composition of this ETF, you can use this link to the full feature.
Dividend Yield
Highlights
Top Sectors
What’s happening in the markets?
US information technology stocks had a difficult year in 2022, dragged down largely by surging inflation as well as high interest rates. As a result, stock prices for big tech companies such as Meta, Amazon and Alphabet dipped by double digits.
Investment environment
The US tech sector has fared better this year, with the S&P 500 Information Technology Index up 35.1% year-to-date and it looks poised to return double-digit growth by the end of 2023. The iShares S&P 500 Information Technology Sector UCITS ETF aims to provide investors with exposure to the US tech sector, as defined by the Global Industry Classification Standard.
The underlying fund of this ETF invests in listed tech companies such as Apple (26.7%), Microsoft (18.4%), Nvidia (10.8%), Broadcom (3.9%), Salesforce (2.6%), Cisco Systems (2.4%), Accenture (2.2%) and Adobe (2.2%).
Apple has a market value of about $2.83tn and its stock is currently trading at about $180.09/share, an appreciation of 44% year-to-date. The surge comes on the back of Apple striking a multiyear deal with Broadcom – a US-based manufacturer of a wide range of semiconductor and infrastructure software products.
Essentially, the agreement entails that Broadcom will supply Apple with various 5G radio frequency components and other wireless connectivity products. This is a positive move for Apple as it will reduce reliance on Chinese manufacturers for supplies of crucial parts and components. Another attractive feature about this deal is that it will help limit the effects of supply chain disruptions that may arise in the future.
Nvidia – a designer and developer of tech hardware such as graphic processing units that are essential for performing high-quality graphics for computers and gaming – is among the tech giants that have pushed the US tech sector upward this year. The company has a market capitalisation of $982.32bn with its stock rising by about 178% this year which, as the third-largest holding, bodes well for this ETF.
Nvidia’s core business is designing high-performance chips that are used by artificial intelligence (AI) companies. As a result, excitement about the company began in November 2022 when OpenAI released ChatGPT – an AI-powered chatbot. This prompted other companies to step-up their chatbots.
Nvidia holds over 80% market share in specialist AI chips, according to The Economist. However, this dominance and rosy outlook may invite competition from startups as well as big tech companies and chipmakers such as Intel and Amazon. S&P Dow Jones Indices increased the weighting of Nvidia in the S&P 500 Information Technology Sector UCITS by 6.24% this year.
A significant risk to the AI industry may come from governments and regulators who are concerned about the dangers of AI to society and national security. Despite this risk, the AI industry is set for growth as it provides a platform for innovative technology. While regulation may reduce this growth, it will in all likelihood not extinguish it completely.
From a macro point of view, the US tech sector is back in favour this year based on a positive outlook on interest rates and inflation. US inflation eased to 4.9% in April, which is a tenth consecutive decline. Speaking at a press conference in May, Federal Reserve Chair Jerome Powell signalled that the Federal Open Market Committee will likely leave rates unchanged in June.
Overall, the US tech sector's impressive performance this year is driven by a confluence of factors, which are higher demand for tech, Apple’s investment in the US tech industry, as well as prospects for lower interest rates over the medium to long term as inflation cools off. Although this sector is volatile, it generally outperforms the S&P 500 during upswings. This ETF is suitable for risk-tolerant investors who have a long-term investment horizon. It has a total expense ratio of 0.50%.
Investment term of the week: Feeder Fund
A feeder fund is a type of investment fund that does most of its investments through a master fund, using a master feeder relationship. It is similar to a strategy called fund of funds, but the main difference is that the master fund does all the investing.
1nvest S&P500 Info Tech Index Feeder Fund (JSE:ETF5IT)
New to investing and want to learn more about other ETFs?
Background: Exchange-traded funds (ETFs)
Exchange-traded funds (ETFs) are passively managed investment funds that track the performance of a basket of pre-determined assets. They are traded the same way as shares and the main difference is that whereas one share gives exposure to one company, an ETF gives exposure to numerous companies in a single transaction. ETFs can be traded through your broker in the same way as shares, say, on the EasyEquities platform. In addition, they qualify for the tax-free savings account, where both capital and income gains accumulate tax free.
Benefits of ETFs
Disclaimer
This research report was issued by Intellidex (Pty) Ltd. Intellidex aims to deliver impartial and objective assessments of securities, companies or other subjects. This document is issued for information purposes only and is not an offer to purchase or sell investments or related financial instruments. Individuals should undertake their own analysis and/or seek professional advice based on their specific needs before purchasing or selling investments. The information contained in this report is based on sources that Intellidex believes to be reliable, but Intellidex makes no representations or warranties regarding the completeness, accuracy or reliability of any information, facts, estimates, forecasts or opinions contained in this document. The information, opinions, estimates, assumptions, target prices and forecasts could change at any time without prior notice. Intellidex is under no obligation to inform any recipient of this document of any such changes. Intellidex, its directors, officers, staff, agents or associates shall have no liability for any loss or damage of any nature arising from the use of this document.
Remuneration
The opinions or recommendations contained in this report represent the true views of the analyst(s) responsible for preparing the report. The analyst’s remuneration is not affected by the opinions or recommendations contained in this report, although his/her remuneration may be affected by the overall quality of their research, feedback from clients and the financial performance of Intellidex (Pty) Ltd.
Intellidex staff may hold positions in financial instruments or derivatives thereof which are discussed in this document. Trades by staff are subject to Intellidex’s code of conduct which can be obtained by emailing mail@intellidex.coza.
Intellidex may also have, or be seeking to have, a consulting or other professional relationship with the companies mentioned in this report.