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6 Tech ETFs With Maximum Exposure to Microsoft

Sweta Killa

The world's largest software maker Microsoft MSFT hit a new record high on Sep 19, following dividend hike and new share repurchase plan news.

The company announced that it will repurchase as much as $40 billion of shares in a new buyback program, which has no expiration date and may be terminated at any time. This is the third time that Microsoft has pursued a buyback plan of $40 billion after 2013 and 2016. Additionally, Microsoft boosted its quarterly dividend by 11% or 5 cents to 51 cents per share. The new payout represents an annual yield of 1.45%, higher than Apple’s dividend yield of 1.39% (read: Dividend Growth ETFs for Long Term Investors).

Microsoft now has a market cap of $1.1 trillion, jumping almost 40% this year. It is the second-best performing stock in the Dow, trailing Apple AAPL, which has gained 41% so far this year and the only other company with a market valuation above $1 trillion. The company has strongly achieved its success in shifting its business toward Internet-based computing, which includes products such as Office 365, Dynamic 365 and the flagship Azure computing platform. This has become a major source of growth.

Solid Fundamentals

Microsoft saw solid earnings estimate revision of 13 cents for the fiscal year (ending Jun 2020) over the past three months. This represents substantial year-over-year growth of 10.11%, much higher than the industry average growth of 7.78%. Revenues are expected to grow 11.16% for this fiscal year, much higher than 5.41% industry average growth. As such, the software leader has a top Growth Score of A.

Additionally, the stock is cheaper than the most others in the industry with a P/E ratio of 26.48 versus 29.50 for the industry (read: Top-Ranked ETFs Crushing the Market YTD).

Microsoft carries a Zacks Rank #3 (Hold) and has a VGM Score of B. It falls under a top-ranked Zacks industry (top 28%), which suggests that its outperformance is likely to continue in the days ahead.

ETFs in Focus

Investors seeking to bet on this software leader could definitely try out ETFs. While there are several ETF options available, we have highlighted six with double-digit exposure to Microsoft that could be compelling choices.

Select Sector SPDR Technology ETF XLK

This most-popular technology ETF follows the Technology Select Sector Index and has $23 billion in AUM. The fund charges 13 bps in fees per year from investors and trades in heavy volume of around 13 million shares a day on average. It holds about 67 securities in its basket, with Microsoft occupying the top position at 19.3%. XLK has a Zacks ETF Rank #1 (Strong Buy) with a Medium risk outlook (read: 5 Tech ETFs to Pick at $30 or Below).

iShares Dow Jones US Technology ETF IYW

This ETF tracks the Dow Jones U.S. Technology Capped Index, giving investors exposure to 148 technology stocks. Of these, Microsoft occupies the top position in the basket with 17.2% of the assets. The fund has AUM of $4.2 billion and charges 42 bps in fees and expenses. Volume is good as it exchanges nearly 136,000 shares a day. The fund has a Zacks ETF Rank #1 with a Medium risk outlook.

Vanguard Information Technology ETF VGT

This fund manages about $21.5 billion in its asset base and provides exposure to 333 technology stocks. It currently tracks the MSCI US Investable Market Information Technology 25/50 Index. Here MSFT occupies the second position with 15.4% share. The ETF has 0.10% in expense ratio, while volume is solid at nearly 589,000 shares. It has a Zacks ETF Rank #1 with a Medium risk outlook.

MSCI Information Technology Index ETF FTEC

This fund is home to 320 technology stocks with AUM of $2.6 billion. It follows the MSCI USA IMI Information Technology Index. MSFT is the top firm with a 15.8% allocation. The ETF has 0.08% in expense ratio, while volume is solid at 289,000 shares a day. It carries a Zacks ETF Rank #1 with a Medium risk outlook.

iShares Evolved U.S. Technology ETF IETC

This is an active ETF, having accumulated $16.4 million in its asset base so far. It employs data science techniques to provide exposure to 222 technology stocks. Microsoft is the top firm with 15.6% allocation. IETC trades in a light volume of 8,000 shares and charges 18 bps in annual fees (see: all the Technology ETFs here).

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 114 stocks in its basket, Microsoft occupies the top spot with 15.3% share. American firms dominate the fund’s portfolio at 79.2%. The ETF has amassed $2.8 billion in its asset base but trades in a good volume of 94,000 shares a day on average. Expense ratio came in at 0.46%.

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