FTEC ETF: Technology Dashboard For February (NYSEARCA:FTEC)

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This monthly series of articles features a dashboard with aggregate industry indicators in technology and communication services. It can also serve as a top-down analysis of some technology ETFs, whose largest stocks are used to calculate these indicators.

Label

The next two paragraphs in italics describe the dashboard methodology. They are needed by new readers to understand performance. If you are used to this series or you do not have enough time, you can skip them and go to the charts.

Baseline figures

I calculate the average of the five main ratios for each industry: return on profits (“EY”), return on sales (“SY”), return on free cash flow (“FY”), return on capital (“ROE”), gross margin (“GM”). »). The reference universe includes major companies in the U.S. stock market. Five baseline indicators are calculated over 12 months. For all of them, the higher the better. EY, SY and FY are the medians, reverse price / profit, price / sale and value / free cash flow. They are better suited for statistical research than price ratios to something that are inappropriate or unavailable if “something” is close to zero or negative (e.g., negative-income companies). I also look at two momentum metrics for each group: average monthly income (RetM) and average annual income (RetY).

I prefer the median average because the median divides the set into a good half and a bad half. Weighted average capital is distorted by extreme values ​​and the largest companies. My indicators are for collecting stocks, not for investing in indices.

Value and quality indicator

I calculate historical baselines for all indicators. They are marked EYh, SYh, FYh, ROEh, GMh respectively and are calculated as averages over the 11-year review period. For example, the EYh value for equipment in the table below is an average of 11 years of average profits in equipment companies.

Valuation (“VS”) is defined as the average difference in% between the three valuation factors (EY, SY, FY) and their baselines (EYh, SYh, FYh). Similarly, the quality indicator (“QS”) is the average difference between the two quality factors (ROE, GM) and their baselines (ROEh, GMh).

Estimates in percentage points. VS can be interpreted as the percentage of underestimation or overestimation relative to baseline (positive is good, negative is bad). This interpretation should be treated with caution: the baseline is an arbitrary reference, not an assumed fair value. The formula assumes that three evaluation indicators are of equal importance.

Current data

The following table shows the figures and scores as of last week’s close. Columns mean all the above and defined data.

Sun.

QS

EY

SY

FY

CAVIAR

GM

EYh

СЫХ

FYh

ROEh

GMh

RetM

RetY

Equipment

74.38

76.37

0.0618

1.4942

0.0695

18.25

38.03

0.0343

0.8807

0.0401

6.96

41.93

-5.18%

26,03%

Camp Equip.

-25.35

25.73

0.0332

0.1359

0.0293

22.58

62.80

0.0312

0.2864

0.0418

14.76

63.78

-4.03%

-10.11%

Entertainment

-43.25

-8.63

0.0263

0.3223

0.0178

12.94

48.67

0.0505

0.4409

0.0395

17.28

45.14

3.11%

-7.31%

Electronic equipment.

-28.03

45.44

0.0373

0.3254

0.0371

20.65

43.61

0.0438

0.8566

0.0400

12.47

34.82

-6.34%

1.82%

Software

-25.81

20.00

0.0239

0.1200

0.0271

24.57

84.08

0.0277

0.1811

0.0387

17.25

86.13

-1.35%

-17.44%

Telecom

-48.42

-32.32

0.0565

0.5654

-0.0149

4.50

57.36

0.0489

0.6513

0.0313

11.91

58.77

-2.19%

13.04%

Semiconductors

-18.79

13.45

0.0488

0.1716

0.0271

29.05

62.77

0.0471

0.2570

0.0370

23.09

62.11

-8.32%

2.27%

IT services

-29.96

6.89

0.0317

0.1825

0.0261

28.51

54.72

0.0396

0.3438 th most common

0.0339

24.64

55.81

-4.74%

7.81%

Cost and quality table

The following chart shows cost and quality indicators by industry (the higher the better).

Value and quality in technology

Value and quality in technology (Diagram: author; data: Portfolio123)

Evolution from last month

Again, the cost and quality of equipment have improved significantly.

Variations in price and quality

Variations in price and quality (Diagram: author; data: Portfolio123)

Impulse

The following diagram shows the pulse data.

Impulse in technology

Impulse in technology (Diagram: author; data: Portfolio123)

Interpretation

Hardware is well above baseline in both cost and quality based on 11-year averages. It was the most attractive technology industry for several quarters, and its position compared to other industries has become even better in the current market correction. Other industries are overvalued by 19-43% relative to historical averages. Good quality performance may justify this in part for electronic equipment and to a lesser extent for communication equipment, software and semiconductors. Telecommunications and entertainment have both value and quality in negative territory. Telecommunications shows the worst results on the list.

Focus on FTEC

The Fidelity MSCI ETF (FTEC) tracks the MSCI USA IMI 25/50 information technology index from 21.10.2013. It has an overall expense ratio of 0.08%, which is slightly cheaper than other ETFs with a passive index in the same sector as XLK (0.12%) and VGT (0.10%). At the time of writing, the fund has 368 shares. The following table shows the top 10 holdings with baseline and growth rates. Their total weight is about 60%. The first two holdings (Apple Inc. and Microsoft Corp.) weigh more than 40% together, which represents a high idiosyncratic risk associated with these companies.

Ticker

Name

Weight%

Earnings per share growth% TTM

P / E TTM

P / E forward

Yield%

AAPL

Apple Inc.

23.06%

62.83

28.69

28.35

0.51

IFFT

Microsoft Corp.

17.42%

39.98

31.97

32.03

0.83

NVDA

NVIDIA Corp.

4.95%

111.95

81.72

61.01

0.06

In

Visa Inc.

3.14%

26.04

38.61

31.85

0.66

MA

Mastercard Inc.

2.69%

37.46

43.55

36.61

0.51

AVGO

Broadcom Inc.

1.95%

138.11

40.18

18.18

2.72

CSCO

Cisco Systems Inc.

1.88%

9.19

20.18

15.89

2.73

ADBE

Adobe Inc.

1.87%

-7.60

47.86

34.79

0

ACN

Accenture plc

1.73%

18.34

34.27

31.27

1.18

CRM

salesforce.com Inc.

1.68%

-52.61

118.11

45.64

0

Data calculated using Portfolio123

Since its founding in October 2013, FTEC and XLK have had almost identical annual returns and Sharpe ratios (risk-adjusted performance).

Overall profitability

Annual. Return

Drawdown

Sharpe

FTEC

437,60%

22.45%

-31.90%

1.25

XLK

434,48%

22,37%

-31.15%

1.3

FTEC is a fund with cheap fees for investors looking for weighted capital in technology. It has significantly more shares than XLK (currently 368 vs. 79), but this has not made a significant difference to past figures: tail stocks have a low aggregate weight compared to technology companies S&P 500. Investors looking to maintain a position in technology long term, may indifferently choose FTEC or XLK. However, liquidity makes XLK the best choice for tactical distribution and trading. For those who want to avoid being overweight at Apple and Microsoft, the Invesco S&P 500 Equal Weight Technology ETF (RYT) may be the best choice.

Dashboard list

I use the first table to calculate cost and quality estimates. It can also be used in the stock collection process to test how companies stand among their counterparts. For example, the EY column tells us that an equipment manufacturing company with a profit above 0.0618 (or a price / profit below 16.18) is in the top half of the industry against that figure. The list of dashboards is sent to subscribers every month for quantitative risks and prices, with the most profitable companies in the top half among their counterparts on three valuation indicators simultaneously. The list below was sent to subscribers a few weeks ago based on data available at this time.

DFIN

Donnelley Financial Solutions Inc.

CALL

Kulicke and Soffa Industries Inc.

THREE

Thryv Holdings Inc.

COHU

Cohu Inc.

IT

Gartner Inc.

TDC

Teradata Corp.

SWKS

Skyworks Solutions Inc.

QCOM

QUALCOMM Inc.

This is a rotating list with a statistical bias towards excessive returns in the long run, not the result of an analysis of each stock.

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