Three Tech ETFs Worth a Look

Technology and its exchange-traded funds are expected to outperform most sectors in the coming year. These ETFs should benefit from tech strength.
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By Kevin Grewal, editorial director at



) --As innovation continues to entice the consumer, technology and its exchange-traded funds are expected to outperform most sectors in the coming year.

Technology as a sector is relatively broad, but the subsectors that are expected to perform the best include chip makers, mobile-device providers and software companies. The expected surge in chip makers and mobile-device providers come hand in hand, because as demand in mobile devices increases, so does demand for the chips that occupy those devices.

Internationally, mobile devices are expected to increase in demand as middle classes start to emerge in developing countries. In some nations, like Taiwan and South Korea, many people carry multiple mobile phones, because it is one of the only sources of infrastructure that enables one another to communicate and stay in touch.

Domestically, the demand for mobile devices is expected to increase as technological improvements widen the functionality of smartphones and increase their appeal. Some smartphones, like the iPhone by


(AAPL) - Get Report

, are so technologically advanced that one could potentially run a business from the palm of his hand. Others, like the Blackberry by

Research In Motion


, enable consumers to access email and view spreadsheets with the touch of a button. Additionally, most smartphones are equipped with GPS devices or an IP address, which gives users access to information at the blink of an eye.

According to market research firm

Interactive Data Corporation


, more than 200 million smartphones are expected to ship in 2010 and more than 1 billion mobile devices will access the Internet. In fact, the rate of growth for mobile users is 2.5 times the rate of PC users, and will likely surpass the number of people accessing the Internet via a PC.

As for software, the launch of


(MSFT) - Get Report

Windows 7 operating system is the talk of the town and many technologically savvy individuals are smiling from ear to ear. Many say this new operating system is the best thing since Windows XP. To add to software's appeal, the penetration of Windows 7 is expected to be widespread, as the majority of PCs are expected to be running the new operating system come 2011.

ETFs that are likely to benefit from these trends include:

  • iShares Dow Jones US Technology (IYW) - Get Report, which gives exposure to Microsoft, Apple and chip-maker giant Intel (INTC) - Get Report. IYW closed at $57.99 on Wednesday.
  • Semiconductors HOLDRs (SMH) - Get Report, which gives broad exposure to semiconductors and chip makers like Intel and Texas Instruments (TXN) - Get Report. SMH closed at $28.18 on Wednesday.
  • Technology Select Sector SPDR (XLK) - Get Report, which gives exposure to AT&T (T) - Get Report in addition to Microsoft, Apple and Intel. XLK closed at $22.98 on Wednesday.

Although the trends appear to be favorable for the technology sector, in particularly the mentioned subsectors, it is important to understand that these equities come with inherent risks. A good way to mitigate these risks is through the use of an exit strategy, which triggers price points at which an upward trend could potentially be coming to an end.

According to the latest data at

, an upward trend in the previously mentioned ETFs could come to an end at the following price points: IYW at $56.46; SMH at $27.09; XLK at $22.50. These price points change on a daily basis and are reflective of market volatility and conditions. Updated data can be found at

-- Written by Kevin Grewal in Laguna Niguel, Calif.

Kevin Grewal serves as the editorial director and research analyst at The ETF Institute, which is the only independent organization providing financial professionals with certification, education, and training pertaining to exchange-traded funds (ETFs). Additionally, he serves as the editorial director at where he focuses on mitigating risks and implementing exit strategies to preserve equity. Prior to this, Grewal was an analyst at a small hedge fund where he constructed portfolios dealing with stock lending, exchange-traded funds, arbitrage mechanisms and alternative investments. He is an expert at dealing with ETFs and holds a bachelor's degree from the University of California along with a MBA from the California State University, Fullerton.