Excerpt of the article published on April 15, 2021:
Cyclicals are hot, and it's time to jump on the value bandwagon.
Or is it?
If you're looking for a corner of the market that's demonstrated an ability to "deliver extended growth for a long period of time," in the words of one investment professional, how about software?
That ETF-watcher is Will Geisdorf, senior research analyst with Allegiant Private Advisors. Geisdorf likes the iShares Expanded Tech-Software Sector ETF after it went through a small downturn earlier in the year, a victim of the rush to more beaten-down segments of the market.
"We have a really positive view on software over the next decade," Geisdorf told MarketWatch — that is, enterprise software for corporate, more than individual, use. Companies are sitting on a lot of cash — roughly 25% higher than their 5-year average, he reckons, with the sectors having the most, relative to history, being traditional big spenders: consumer discretionary, financials, and communication services."
There are a few competing ETFs, Geisdorf noted, but he likes IGV in particular because it offers "the purest play," in his words, on the software theme. The ETF's portfolio has a lot of heavyweights: Microsoft, Oracle, and Intuit are some of its most concentrated holdings. It also has big stakes in several of the new-economy darlings, such as Zoom Video, ServiceNow, and Activision Blizzard.
While some of the names in the portfolio ran up dramatically during the pandemic year, Geisdorf thinks there's still room for growth — though he acknowledges the software space may still seem like a contrarian pick.
"I think that if anything, the pandemic showed the staying power of the cloud," he said. Some of the stocks within IGV may also get a boost from President Joe Biden's proposed infrastructure bill, which aims to expand broadband access, among other things.
One downside: IGV, which tracks an index, charges a higher fee, of 46 basis points, than many other funds. In the 12 months through Wednesday, it gained 61.4%, slightly lagging the Nasdaq, but beating the S&P 500's 48% gain. In the year to date, it's only gained 4.5%, in part because of the mid-February correction, which Geisdorf notes makes for a better entry point.
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