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Following our analysis of trending ETF’s, this article will focus on the information technology sector. The MSCI World Information Technology Index serves as an example for one of the many indexes, which track the IT sector. The IT industry has emerged to become one of the key contributers to global economic growth. Also, many institutions created custom ETF’s to participate in the phenomenal growth within that industry. While some ETFs just replicate an existing technology index (such as the MSCI World Information Technology Index), others establish their own criteria for securities to be included in the ETF. In this analysis, we will draw our focus to the MSCI World Technology Index and ETFs which replicate the index.
MSCI Information Technology ETF Analysis
The performance of the MSCI World Information Technology Index speaks for itself. The index noted at about 21 EUR beginning of January 2019. At the end of November 2019 it was already up to 32 EUR. This is equal to an almost +50 %(!) gain in less than a year. While the 10 year performance is not at this level, the index has still increased by roughly +15 % over the last decade (see our factsheet). The huge recent performance boost comes as no surprise, as the technology sector is soaring.
While we take the opinion that the technology sector seems to be close to peak-performance, the journey may well continue for some time to come. For investors with a short-term or mid-term investment strategy, the technology sector may still offer some room for additional gains. However, many stocks in the technology sector seem overvalued and show signs of a bubble. Therefore, a bear market in the sector, is not unlikely and could potentially hit any time. In the long-run a price correction seems unavoidable. Investors should exercise caution and do their due dilligence when selecting stocks or indices in the sector.
Outlook & Conclusion
Technology stocks attracted increased attention among investors in recent years. Everybody wants to participate in the rally which contributes to the ever rising share prices of techology stocks. Apple recently hit its all time high. Also many other stocks are close to or have already set new valuation highs, like Microsoft, AMD or SAP.
It is beyond doubt, that technology is providing tremendous value to our global economies. It is however doubtful if the companies can justify current valuations and stand the test of time. As stated before, any investor who is interested in the sector is well adviced to carefully examine the industry and do the required due dilligence.