With technology stocks surging this year, the iShares Global Tech ETF (NYSEARCA:IXN) is up nearly 40% year-to-date. What is this red-hot ETF’s invest investment strategy, and how does it stack up to the competition? Let’s take a closer look and see if it could be a worthy addition to investor portfolios.
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What Does the IXN ETF Do?
IXN is a $3.6 billion ETF from BlackRock’s (NYSE:BLK) iShares that invests in stocks in the S&P Global 1200 Information Technology 4.5/22.5/45 Capped Index, an index of global equities in the technology sector.
Portfolio Composition
IXN sports 115 positions, but investors should be aware that its top 10 holdings make up nearly two-thirds of its portfolio, so this is a fairly concentrated fund. Check out the chart below for a breakdown of IXN’s top 10 holdings.
Top holding Apple (NASDAQ:AAPL) makes up a whopping 21.9% of assets, while Microsoft (NASDAQ:MSFT) isn’t far behind at 19.9%. Semiconductor names Nvidia (NASDAQ:NVDA), Broadcom (NASDAQ:AVGO), and Taiwan Semiconductor (NYSE:TSM) round out the top five holdings.
Where the fund differs from other popular tech ETFs like the Invesco QQQ Trust (NASDAQ:QQQ) and the Technology Select Sector SPDR Fund (NYSEARCA:XLK) is that it invests globally, not just in companies listed on U.S. exchanges like the Nasdaq (NDX), in the case of QQQ, or the S&P 500 (SPX), in the case of XLK, so it also owns international tech stocks like ASML Holding (NASDAQ:ASML) and Samsung Electronics.
While 81% of the fund’s investment is in U.S. companies (as of the end of Q1), mostly thanks to the massive market caps of the U.S. tech giants, it also invests in companies from Taiwan, Japan, South Korea, the Netherlands, Germany, and beyond.
By subsector within technology, IXN currently invests 38.6% of its assets in software and services, 33.7% in tech hardware and equipment, and 27.3% in semiconductors and semiconductor equipment. The rest gets allocated to “cash and/or derivatives.”
Is IXN Stock a Buy, According to Analysts?
Turning to Wall Street, IXN has a Moderate Buy consensus rating from analysts, as 62.6% of analyst ratings are Buys, 32.3% are Holds, and 5.1% are Sells. At $63.70, the average IXN stock price target implies 5.3% upside potential.
IXN’s Long-Term Performance
IXN has posted some really strong returns over time. As of the end of May, it has generated a three-year annualized total return of 18%. Going out to five years, it has an annualized total return of 17.2%, and over the past decade, it has an annualized total return of 18.2%. As you can see, IXN has been remarkably consistent in providing its investors with outstanding total returns for a very long time. Now, let’s see how IXN stacks up against the competition.
These results make IXN one of the rare investment products that can say it “beats the market” over time. As of the end of May, the Vanguard S&P 500 ETF (NYSEARCA:VOO), a good proxy for the S&P 500 as a whole, put up annualized total returns of 12.8%, 11%, and 11.9% over the past three, five, and 10 years, respectively.
But let’s also compare IXN specifically to the two other aforementioned major technology ETFs, QQQ and XLK. Over the same time horizon, as of the end of May, QQQ has posted annualized total returns of 14.8%, 16.2%, and 17.9% over the past three, five, and ten years, respectively.
Using the same parameters, XLK has posted annualized total returns of 19.9%, 20%, and 19.6% over the past three, five, and 10 years respectively. So, IXN actually slightly outperforms the more well-known QQQ over various time frames over the past decade, albeit by a narrow margin at the 10-year mark, and has slightly underperformed XLK.
IXN’s Fees — Are They High?
As you can see, IXN is an ETF with a worldwide portfolio of tech stocks that is beating both the S&P 500 and edging out the Nasdaq over time. The only two negatives to point out are the aforementioned reliance on Apple and Microsoft and the second concern, which is its expense ratio.
While a 0.4% expense ratio isn’t anything out of the ordinary in the ETF market, it is quite a bit higher than QQQ, which has an expense ratio of just 0.2%, or XLK, which charges just 0.1%.
Assuming current expense ratios remain the same, and the funds all return 5% a year, an investor allocating $10,000 into IXN will have paid $505 in fees over 10 years versus $255 in fees for QQQ and just $128 for XLK.
Below, you can take a look at a comparison between IXN, QQQ, and XLK using TipRanks’ ETF comparison tool, which enables users to compare up to 20 ETFs at once using a customizable array of parameters.
Investor Takeaway
As you can see above, all three of these ETFs are up big year-to-date (around 35-40%), and all three have ETF Smart Scores of 8 out of 10, an Outperform rating. The Smart Score is TipRank’s proprietary quantitative stock scoring system. It gives stocks a score from 1 to 10 based on eight key market factors.
IXN’s fees are higher than those of peers like QQQ or XLK, and the fund has quite a bit of exposure to Apple and Microsoft (which, combined, make up over 40% of assets), but with the types of returns it has provided, these may be facts that investors are willing to overlook (Note that XLK also has similar exposure to Apple and Microsoft).
Keep in mind that an investor who put $10,000 into IXN 10 years ago would now have over $50,000 today, so this is clearly the type of ETF that can help investors build long-term wealth. I also like the fact that IXN offers a bit more geographic diversification than the average tech ETF, thanks to the fact that it invests globally and holds stocks like Samsung and ASML, which differentiates it from its peers.
At the end of the day, it’s hard to go wrong with any of these three ETFs, as they all have been great investments over the long term, and they continue to look well-positioned for the future.
