1 Information Technology and Cloud Computing



Participating in tech startup IPOs


IPOs offer investors the opportunity to get in on a tech startup as it startstrading on the open market. “IPOs are usually discounted to ensure sales,which makes them even more attractive, especially when they generate a lot ofbuyers from the primary issuance,” explains Investopedia.Until recently, many tech companies chose to stay private for longer, eitherdelaying their IPO launches or forgoing them altogether. However, in 2020 andinto 2021, tech companies have been keen on IPOs.Research from Baker McKenzie shows that 2020 was a record year for global IPOraises, with US$331 billion raised across 1,591 listings — up 42 percent over2019. The financial and technology industries top the list in terms of bothvolume and capital raises. Three of the biggest IPOs for 2020 included Airbnbfor US$3.49 billion, DoorDash for US$3.37 billion and Snowflake for US$3.9billion.Click here to learn more about how to participate in an IPO.

Subcategories That Make up the Tech Sector


The tech sector is vast and made up of several subcategories, including:

1. Information Technology and Cloud Computing


By definition, information technology is the process of using computers torelay, store, or manipulate data. Companies in this space include cloudcomputing companies that give consumers, corporations, and government agenciesthe ability to store data in and retrieve data from “the cloud,” which is madeup of a large group of highly secured servers.Some of the most popular companies in the information technology and cloudcomputing subsector of the tech sector include: * Amazon.com (AMZN). With Amazon Web Services, also known as AWS, Amazon.com is by far the leader in the United States cloud computing sector. According to Statista, the company controls about 33% of the cloud computing market. * Microsoft (MSFT). Microsoft is another massive player in the cloud computing space, thanks to its Microsoft Azure product. According to Kinsta, Microsoft controls about 17% of the cloud computing market.

4. Biotechnology


When you think of tech companies, it’s not likely that your mind will go tomedicine. However, some of the most impressive tech stocks on Wall Street usetechnology as a way to address some of the world’s most pressing medicalconditions. These companies are known as biotechnology or biotech companies.Some of the best-known companies in the biotech space include: * Novo Nordisk (NVO). Novo Nordisk is one of the largest biotech companies in the world. It is credited with developing the technology that led to drugs like Levemir, NovoLog, Novolin R, NovoSeven, NovoEight, and Victoza. The company’s primary focus is on the treatment of diabetes and hemophilia as well as growth hormones. * Regeneron Pharmaceuticals (REGN). Regeneron Pharmaceuticals develops technologies for the treatment of eye diseases, cancer, cardiovascular diseases, allergic and inflammatory issues, and infectious diseases. * Alexion Pharmaceuticals (ALXN). Alexion Pharmaceuticals develops technologies for the treatment of cardiovascular and autoimmune diseases.

Tech-Focused ETFs Are a Compelling Option for Beginners


If you’re a beginner investor or you simply don’t have the time to do theresearch it takes to pick stocks individually, you may want to look towardNasdaq index funds, exchange-traded funds (ETFs), and mutual funds.Nasdaq index funds are designed to mimic the movement of the tech-heavy Nasdaqcomposite index. So naturally, these are highly diversified choices to giveyou exposure to the tech sector. However, there are also plenty of ETFs andmutual funds that are geared exclusively toward the tech sector or subsectors.Some of the most popular include: * Technology Select Sector SPDR Fund (XLK). The Technology Select Sector SPDR Fund is a highly diversified large-cap ETF designed to track the tech sector as a whole. The largest holdings in the ETF include Apple, Microsoft, and NVIDIA. * Vanguard Information Technology Index Fund ETF (VGT). As its name suggests, the Vanguard Information Technology Index Fund ETF is an ETF that tracks an index of information technology companies. The ETF consists of small-, mid-, and large-cap companies and takes a heavily diversified approach to wider tech sector exposure. * Fidelity Select IT Services Portfolio (FBSOX). Finally, Fidelity Select IT Services Portfolio is a highly diversified mutual fund. At least 80% of the fund’s assets are invested in companies that provide IT services. The fund’s primary objective is capital appreciation, seeking to invest in companies with high potential for future growth.* * *

Subcategories That Make up the Tech Sector


The tech sector is vast and made up of several subcategories, including:

1. Information Technology and Cloud Computing


By definition, information technology is the process of using computers torelay, store, or manipulate data. Companies in this space include cloudcomputing companies that give consumers, corporations, and government agenciesthe ability to store data in and retrieve data from “the cloud,” which is madeup of a large group of highly secured servers.Some of the most popular companies in the information technology and cloudcomputing subsector of the tech sector include: * Amazon.com (AMZN). With Amazon Web Services, also known as AWS, Amazon.com is by far the leader in the United States cloud computing sector. According to Statista, the company controls about 33% of the cloud computing market. * Microsoft (MSFT). Microsoft is another massive player in the cloud computing space, thanks to its Microsoft Azure product. According to Kinsta, Microsoft controls about 17% of the cloud computing market.

4. Biotechnology


When you think of tech companies, it’s not likely that your mind will go tomedicine. However, some of the most impressive tech stocks on Wall Street usetechnology as a way to address some of the world’s most pressing medicalconditions. These companies are known as biotechnology or biotech companies.Some of the best-known companies in the biotech space include: * Novo Nordisk (NVO). Novo Nordisk is one of the largest biotech companies in the world. It is credited with developing the technology that led to drugs like Levemir, NovoLog, Novolin R, NovoSeven, NovoEight, and Victoza. The company’s primary focus is on the treatment of diabetes and hemophilia as well as growth hormones. * Regeneron Pharmaceuticals (REGN). Regeneron Pharmaceuticals develops technologies for the treatment of eye diseases, cancer, cardiovascular diseases, allergic and inflammatory issues, and infectious diseases. * Alexion Pharmaceuticals (ALXN). Alexion Pharmaceuticals develops technologies for the treatment of cardiovascular and autoimmune diseases.

Tech-Focused ETFs Are a Compelling Option for Beginners


If you’re a beginner investor or you simply don’t have the time to do theresearch it takes to pick stocks individually, you may want to look towardNasdaq index funds, exchange-traded funds (ETFs), and mutual funds.Nasdaq index funds are designed to mimic the movement of the tech-heavy Nasdaqcomposite index. So naturally, these are highly diversified choices to giveyou exposure to the tech sector. However, there are also plenty of ETFs andmutual funds that are geared exclusively toward the tech sector or subsectors.Some of the most popular include: * Technology Select Sector SPDR Fund (XLK). The Technology Select Sector SPDR Fund is a highly diversified large-cap ETF designed to track the tech sector as a whole. The largest holdings in the ETF include Apple, Microsoft, and NVIDIA. * Vanguard Information Technology Index Fund ETF (VGT). As its name suggests, the Vanguard Information Technology Index Fund ETF is an ETF that tracks an index of information technology companies. The ETF consists of small-, mid-, and large-cap companies and takes a heavily diversified approach to wider tech sector exposure. * Fidelity Select IT Services Portfolio (FBSOX). Finally, Fidelity Select IT Services Portfolio is a highly diversified mutual fund. At least 80% of the fund’s assets are invested in companies that provide IT services. The fund’s primary objective is capital appreciation, seeking to invest in companies with high potential for future growth.* * *

Tech ETFs to Buy: Vanguard Information Technology ETF (VGT)


Source: ShutterstockVanguard’s Information Technology ETF, which has $36.9 billion in assets undermanagement, provides a way to get a broad exposure to the technology universein the U.S. market. The ETF is based on the MSCI US Investable Market IndexInformation Technology 25/50 index, which has over 330 stocks. The holdingsspan from small to large operators in key areas like software, communicationsequipment, cellular phones, peripherals and semiconductors.However, the index still skews toward large capitalization stocks, with theaverage of $201.8 billion. Some of the top holdings include Apple(NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), Visa (NYSE:V), and Mastercard(NYSE:MA).Moreover, a key advantage of this tech ETF is the low-cost structure. Considerthat the expense ratio is only 0.10% for VGT, and also a decent dividend yieldof 1.09%.

Tech ETFs to Buy: First Trust Cloud Computing ETF (SKYY)


Source: ShutterstockCloud computing has been around and growing for more than 20 years now. Thecategory was pioneered by Salesforce (NYSE:CRM), which has become one of theworld’s largest software company with a market capitalization of $180.5billion.Nonetheless, the industry is still in the growth phase. In fact, acording toGartner, the spending on cloud computing technologies is forecasted to go from$266.4 billion in 2020 to $354.6 by 2022.That said, though, CRM stock shares are above $200 right now. Therefore, acheaper way to play this megatrend is the First Trust Cloud Computing ETF,which has $4.53 billion in assets under management. This tech ETF uses the ISECTA Cloud Computing Index, and includes a variety of cloud categories likeSaaS (Software-as-a-Service), PaaS (Platform-as-a-Service) and IaaS(Infrastructure-as-a-Service). Some of the top holdings include Microsoft,Amazon (NASDAQ:AMZN), Alibaba (NYSE:BABA) and Oracle (NYSE:ORCL).Moreover, the SKYY fund also has an expense ratio of 0.60% and the dividendyield is right around 0.2%. So, overall, SKYY could be worth a look as one ofthe top tech ETFs to buy.

Tech ETFs to Buy: Renaissance IPO ETF (IPO)


Source: ShutterstockTrue, the Renaissance IPO fund is not necessarily a tech ETF. However, it doesusually have a large number of tech companies in the portfolio, as well asbiotech firms. After all, the IPO market is often for next-generationcompanies to raise capital.The IPO fund tracks the Renaissance IPO Index, which includes 42 companies.There is a quarterly review to assess what companies should stay or beremoved.For the year, the IPO fund has been fairly solid. In fact, year-to-date, IPOstock is up 40.5%. It certainly has helped that the holdings have includedbreakout companies like Zoom Video (NASDAQ:ZM), Slack Technologies (NYSE:WORK)and Moderna (NASDAQ:MRNA).I actually selected the IPO fund for InvestorPlace.com’s annual exchange-traded funds contest. As of now, it’s ranked No. 2, behind the Global X CloudComputing Fund (NASDAQ:CLOU).Tom Taulli (@ttaulli) is an advisor and author of various books and onlinecourses about technology, including Artificial Intelligence Basics, TheRobotic Process Automation Handbook and Learn Python Super Fast. He is alsothe founder of WebIPO, which was one of the first platforms for publicofferings during the 1990s. As of this writing, he did not hold a position inany of the aforementioned securities.

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