FTEC: Concentration Increases Volatility

seekingalpha03-27

Fidelity MSCI Information Technology Index ETF is a strong contender for investors seeking solid tech exposure.FTEC has performed in line with VGT and has a highly concentrated portfolio with 45% of ...

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href=https://seekingalpha.com/article/4680503-ftec-concentration-increases-volatility><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Fidelity MSCI Information Technology Index ETF is a strong contender for investors seeking solid tech exposure.FTEC has performed in line with VGT and has a highly concentrated portfolio with 45% of ...</p>\n\n<a href=\"https://seekingalpha.com/article/4680503-ftec-concentration-increases-volatility\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"LU0289739343.SGD","symbol_name":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (SGD) ACC","start_time":0,"source_url":"https://seekingalpha.com/article/4680503-ftec-concentration-increases-volatility","article_id":"2422646356","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1485546309/image_1485546309.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2422646356","pubTimestamp":1711468846,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Fidelity MSCI Information Technology Index ETF is a strong contender for investors seeking solid tech exposure.FTEC has performed in line with VGT and has a highly concentrated portfolio with 45% of AUM in Microsoft, Apple, and NVIDIA.Consensus estimates suggest potential upside of 7% to year-end 2024, but the heavy concentration in three stocks may increase volatility.   gremlin Summary What is the best tech ETF?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"LU0289739343.SGD":"SUSTAINABLE GLOBAL THEMATIC PORTFOLIO \"A\" (SGD) ACC","LU0323240290.USD":"HSBC GIF GLOBAL EQUITY CLIMATE CHANGE \"AD\" INC","LU1316542783.SGD":"Janus Henderson Horizon Global Technology Leaders A2 SGD","LU2458330169.SGD":"FRANKLIN SHARIAH TECHNOLOGY \"A\" (SGD) ACC","IE00B775SV38.USD":"NEUBERGER BERMAN US MULTICAP OPPORTUNITIES \"A\" (USD) ACC","IE00BJTD4N35.SGD":"Neuberger Berman US Long Short Equity A1  Acc SGD-H","AMD.AU":"Arrow Minerals Ltd","LU2458330243.SGD":"FRANKLIN SHARIAH TECHNOLOGY \"A-H1\" (SGDHDG) ACC","LU2357305700.SGD":"Allianz Global Artificial Intelligence ET H2-SGD","IE0034235295.USD":"PINEBRIDGE GLOBAL DYNAMIC ASSET ALLOCATION \"A\" (USD) ACC","IE00B3S45H60.SGD":"Neuberger Berman US Multicap Opportunities A Acc SGD-H","BK4549":"软银资本持仓","LU2023251221.USD":"ALLIANZ GLOBAL SUSTAINABILITY \"AM\" (USD) 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and has a highly concentrated portfolio with 45% of AUM in Microsoft, Apple, and NVIDIA.Consensus estimates suggest potential upside of 7% to year-end 2024, but the heavy concentration in three stocks may increase volatility.   gremlin Summary What is the best tech ETF? That is a very difficult question to answer and most likely will depend on the investor's goals and even view of what is tech. I believe a good tech ETF should beat the benchmark, the Nasdaq 100 (NDX) for starters, and that it should have a consistent stock selection and weighting methodology. In the recent past I analyzed Vanguard Information Technology Index Fund ETF Shares (VGT) and found its 20% weight in Apple unappealing (it has since adjusted down to 16%). Now I analyzed the Fidelity MSCI Information Technology Index ETF (NYSEARCA:FTEC) and found it is a good contender for investors searching for solid tech exposure but with stock concentration issues that warrant a Hold rating. Performance The FTEC has performed in lockstep with VGT, this is because the two ETFs track the MSCI US IMI Information Technology 25/50 Index. The high concentration in Apple (AAPL) and Microsoft (MSFT) has helped FTEC beat the NDX at the expense of greater potential volatility in my view. Most MSCI indexes are market cap weighted and thus react to changes after stocks have risen or fallen which is highlighted in the last 12 months' weight increase of NVIDIA (NVDA) FTEC Performance (Created by author with data from Capital IQ) Portfolio Overview As can be seen in the table below the ETF has a highly concentrated portfolio with 46% of AUM in Microsoft (MSFT), Apple (AAPL), and NVIDIA. For FTEC I gathered consensus estimates (from Capital IQ) for 81% of the AUM and calculated a potential upside of 7% to year-end 2024 based on analyst price targets, which is low and may suggest the market has gotten ahead of itself. There are 10 stocks with downside and 4 stocks fully valued according to the consensus. Only Adobe (ADBE) and Autodesk (ADSK) have more than 20% potential upside. However, the key to this ETF future relies more on the top weights, which I analyze in greater detail in the next segment.   FTEC Consensus Price Target (Created by author with data from Capital IQ) Apple, Microsoft and NVIDIA Given that Microsoft, Apple, and NVIDIA are the key drivers of this ETF I gathered more detailed consensus estimates (with data from Capital IQ) and conducted a valuation exercise to better gauge their longer-term potential. Valuation Method: For each company, I calculated the consensus PE target based on the YE24 price target and estimated EPS. I then applied that \"fair\" PE multiple to EPS estimates in YE25 through YE27 to get a sense of upside potential. I then calculated the PEG (PE to EPS Growth) ratio to better view the relative valuation of each stock. As can be seen in the tables below, NVIDIA continues to be relatively cheap vs EPS growth at around 0.5x PEG while Apple appears expensive up to 2025. Microsoft: The company sports a very tight and consistent set of consensus estimates suggesting a high degree of earnings visibility as well as confidence in the management's execution. The stock does not appear to be excessively expensive and may continue to perform in line with earnings growth. Note that all charts and tables were created by me with consensus data from Capital IQ.   Microsoft Consensus Data (All charts & tables created by author with data from Capital IQ) Apple: The data suggests that the company has lost some market confidence with more erratic growth estimates short term as well as the absence of data for YE27. Valuation is expensive at 4x PEG through YE25, and it seems analysts are assuming Apple can regain growth in 2026 on AI or new product drivers. Note that all charts and tables were created by me with consensus data from Capital IQ.   Apple Consensus Data (All charts & tables created by author with data from Capital IQ) NVIDIA: The data indicates very high growth expectations through YE25 that support the current valuation premium vs tech peers with a PEG under 0.5x. The extreme EPS dispersion post-2025 suggests that analysts' views are split with some seeing extraordinary growth derived from AI and others viewing this as a cyclical phenomenon. Note that all charts and tables were created by me with consensus data from Capital IQ.   NVIDIA Consensus Data (All charts & tables created by author with data from Capital IQ) Growth & Valuation On a weighted portfolio basis, the consensus estimates EPS growth of 17% in the YE24-25 period driven by over 60% from NVIDIA and 44% from Advanced Micro Devices (AMD) while recently added Super Micro Computer (SMCI) has the highest growth estimates. The ETF is trading at a 27x PE but at a PEG of 1.6x which in my view is still reasonable and has room to expand if/when the risk-free rate i.e. the Fed begins a multi-year.   FTEC Consensus EPS & Valuation (Created by author with data from Capital IQ) Conclusion  I rate the FTEC a Hold. The ETF tracks the MSCI USA Information Technology Index which on the positive side, has shown to outpace the NDX and has been able to adapt to changes in constitutions i.e. high-growth stocks increase weight. However, the current low upside potential of 7% on consensus price targets for 2024 does not warrant a buy. Plus, the heavy concentration of 46% in three stocks may make this fund more volatile than the Nasdaq.","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2422646356"}