My current favorite tech ETF: IYW
Today we’ll look at one of my favorite tech ETF’s, IShares US Technology ETF, or IYW for short. When applicable, I’ll compare it to its peers XLK and VGT. These are the similar competitive offerings from SSGA (State Street Global Advisors) and Vanguard.
IYW is an ETF for those that want more of a concentrated exposure into computer hardware, software and other tech-based businesses. Over 81% of the fund’s exposure is in pure tech businesses and 17% is in communication services.
You can view the up to date chart for this ETF on Yahoo Finance:
What we are considering:
- Inception of IYW
- Index Tracking
- Expense Ratios
- Assets Under Management
- Volume and Spread
- Performance (Short and Long-term)
- Is IWY a good ETF?
Inception of IYW
IYW was born in 2000 (talk about perfect timing for the tech crash party!). So, it’s been around longer than VGT (2004), but not quite as long as XLK (1998). Therefore, this fund has a good bit of history-with a company like Blackrock at the reins, you shouldn’t worry about it going belly up.
Let’s Dive in
One of the first things most people are interested in before purchasing an ETF is what does it hold? What is in it?
SOME OF IYW’s TOP HOLDINGS
- Apple 17.85%
- Microsoft 16.95%
- Alphabet (2 issues) 10%
- Nvidia 4.56%
- Facebook 4.45%
- Adobe 2.56%
- Intel 2.07%
- Salesforce 2.07%
- Cisco 2.04%
As you can see, Apple is the top holding at 17.85%. This seems very concentrated; however, XLK has 21.45% Apple and VGT has 20.06% in Apple. So, as far as a tech ETF goes, it is on the lower end compared to its peers. Notice the absence of Amazon within the fund; yet, many “tech” funds do hold AMZN. Always consider your own individual portfolio when adding another position. How much exposure do you have to these companies already with your individual stocks or funds? Maybe you already own Apple and you don’t want XLK because of the extra Apple. Please notice that the top three stocks make up over 40% of IYW.
Diversification? Number of Holdings?
Now we will take a look at the number of holdings, as well as how it’s diversified via size, comparing to its peers:
As you can see, IYW ranks #2 among these three for the number of holdings. It also has more Large Cap exposure than VGT, but less Mid and Small Cap exposure. It essentially sits right in the middle.
Your personal needs will vary; however, this shows one of the reasons I chose IYW. VGT has many more holdings (more diversified) and also has more small and mid cap stocks. I didn’t want the diversification and I didn’t need more small cap exposure in my own portfolio. My main goal was to capture the concentrated large cap tech exposure. Given that it has less holdings and more is concentrated in the top holdings, you can expect IYW to be somewhat more volatile than VGT.
Each of these funds tracks a different index. Here they are compared.
|IYW||Russell 1000 Technology RIC 22.5/45 Capped Index|
|XLK||S&P Technology select sector Index|
|VGT||MSCI IT 25/50 Index|
From the Russell 1000 Tech RIC Capped Index Fact sheet:
“Constituents are capped quarterly so that no more than 22.5% of the index weight may be allocated to a single constituent and the sum of the weights of all constituents representing more than 4.5% of the index should not exceed 45% of the total index weight.”
Therefore, there ARE things in place to keep the top three positions from becoming 50% or something like that.
Holdings don’t mean much if the EXPENSE RATIO is so high it eats up your investment. IYW does have a higher expense ratio than its peers. Its current Expense ratio is 0.4%; both VGT and XLK have a lower expense ratio of 0.1%. I personally don’t see this as a big deal, the difference isn’t huge. It’s an expense ratio I see worth paying to have exactly what I want. Once again, I’m not viewing this ETF in isolation but as a portion of a larger portfolio. To clarify, on a $10,000 investment, you are paying $40 a year to hold this ETF.
ASSETS UNDER MANAGEMENT:
IYW has an AUM of 8.64B. This is much lower than both XLK and VGT; they have 47.6B and 50.63B respectively.
VOLUME AND SPREAD
The typical spread of IYW is .04%; the typical spread of VGT is the same. XLK has a slightly better spread of 0.01%. Average Volume of IYW is 755K. This is plenty for liquidity and trading purposes.
PERFORMANCE OF IYW
IYW has had a heck of a performance the last few years. In 2021, it returned 35.18%; in 2020, it returned 47.5%. In 2019, it returned 47%. These are some INSANE numbers compared to a total market ETF. However, as the old saying goes, “Past performance is no guarantee of future performance.” To offer some contrast-In 2008, it had a performance of -43.08%. In 2001 (a year after its inception!), the performance was -39%. These numbers are presented to caution those that are apt to chase performance.
Here is the 20 year chart for IYW. Once again, notice the max drawdown of -69.57%; no, it’s not all a bed of roses. The 20 year CAGR is 7.72%. I think that sums up and puts things into perspective quite nice.
How did it do against it’s competitors?
Since 2004, it has a CAGR of 14.06%. VGT has inched it out with 14.47% CAGR; however, it beat out XLK. I chose 2004 because that is the year VGT began, that is the longest run of data we have.
As this is a large cap tech based ETF, dividends are pretty poor. They are less than 1%. Of course, one usually doesn’t buy a tech ETF to gather dividends.
Is IYW a good ETF? Is IYW a good investment?
I can’t tell you whether this ETF is for you (I’m not a financial advisor); however, I will say this is the only tech ETF I own in my portfolio. I was largely drawn to it because of the slightly less Apple exposure and the lack of Amazon like many “Tech” ETF’s have. I also didn’t need more small cap exposure. It fit with my specific portfolio better than the other options.
The obvious disadvantages of this ETF to its peers are the higher expense ratio and lower yield (If you want dividends). Another possible con is the less diversification and greater volatility.
One last piece of advice-I always view positions in the context of an overall portfolio and never in isolation. If you already own other ETFs, go to ETF overlap and make sure you aren’t investing in something you already own too much of:
This helps you fit another particular ETF right into your portfolio and see what you are lacking
Looking for a TOTAL MARKET ETF to complete your portfolio, check out my blog post on ITOT and other total market ETF’s: