There's Nothing Soft About This Software ETF

Markets Benzinga

Even with some recent retrenchment, the technology sector is the best-performing group in the S&P 500 this year and software stocks are a big reason why. Just look at the iShares S&P NA Tec.-SW. Idx. Fund (ETF) (IGV).

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Up nearly 26 percent year-to-date, IGV is one of this year's best-performing technology exchange-traded funds although it's not mentioned in the same breath as some of its larger, more diversified technology peers. IGV, which turns 16 years old next week, is home to just over $1 billion in assets under management.

The ETF tracks the S&P North American Technology-Software Index and holds almost 60 stocks. While IGV leads a quiet existence relative to other technology ETFs, it's the seventh-best non-leveraged sector ETF on a year-to-date basis.

Encouraging Sales Trends

Oracle Corporation (ORCL) is IGV's largest holding at almost 9.7 percent of the ETF's weight. Shares of the largest enterprise software maker are up more than 30 percent this year. After topping fiscal fourth-quarter estimates, the company expects fiscal first quarter sales to rise 4 to 6 percent.

As Benzinga reported last month, while Oracles cloud business performed well, the beat came via total on-premise revs of $7.5 billion, down only 1 percent y/y and a full $450 million ($315 million from license revs) above Oracles guide. With total database revs +8 percent (guidance was for a decline), the upside clearly came from on-premise database sales, according to Deutsche Bank analyst Karl Keirstead.

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Microsoft Corporation (MSFT) is IGV's third-largest holding at a weight of 8.3 percent. That stock is up more than 10 percent year-to-date.

Microsoft is poised to layoff thousands of employees worldwide in a move to reorganize its salesforce, reports TechCrunch. The restructuring is set to includean organizational merger that involves its enterprise customer unit and one or more of its SME-focused divisions. The changes are set to be announced this coming week.

A Pricey Industry Play

Other well-known names in IGV include Adobe Systems Incorporated (ADBE), salesforce.com, inc. (CRM) and Electronic Arts Inc. (EA). IGV's top 10 holdings account for about 60 percent of the ETF's weight.

Investors should be mindful that software stocks currently command a premium to the technology sector. IGV's price-to-earnings ratio of over 41 is above that of the broader technology space and the Nasdaq 100.

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