Aforecast: Purchasing the iShares US Technology ETF (IYW) currently might establish financial security for the future

Aforecast: Purchasing the iShares US Technology ETF (IYW) currently might establish financial security for the future

The iShares US Technology ETF (IYW) has demonstrated strong performance compared to the S&P 500 index fund, particularly over recent years and the past year. For instance, IYW posted a total return of about 20.89% over the past year, outperforming the S&P 500 which generally returns in a lower range (typically around 15-18% yearly in recent strong years)[1][3].

Over a three-year span, IYW returned nearly 29.92%, further indicating its strong growth relative to broad market indexes like the S&P 500[3]. Since inception in 2000, IYW's average annual return has been 8.34%, generally competitive with the S&P 500's long-term average[1].

The factors behind IYW's strong performance and potential growth include:

• Focused exposure on technology sector leaders, especially the "Magnificent Seven" mega-cap tech stocks (such as Apple, Microsoft, and NVIDIA), which dominate the fund’s top holdings (making up about 67% of total assets)[3].
• A sector allocation heavily weighted to software and services (38.23%), semiconductors (33.10%), and tech hardware (17.49%), all areas exhibiting significant secular growth driven by digital transformation, cloud computing, AI, and semiconductor demand[3][2].
• The technology sector's high forward EPS growth estimates (~19.4%) and strong earnings revisions support above-average growth rates, justifying the relatively high forward price-to-earnings (P/E) ratio near 29.8x[2].
• Positive market sentiment and bullish outlook scores for tech ETFs and the sector as a whole, based on quantitative models that incorporate fundamentals, earnings growth, insider buying, and analyst optimism[2].
• IYW benefits from a diversified basket of about 140-145 tech stocks with substantial liquidity (volume ~664K daily) and a sizeable asset base ($22.55 billion), balancing growth potential with diversification and risk management[1][3].

In contrast, the S&P 500 index fund offers broader market exposure, spanning multiple sectors with more stability but usually lower tailwinds from tech-specific innovation compared to a focused tech ETF like IYW. The S&P 500’s tech weighting currently is around 27-30%, making IYW a purer, more concentrated technology play, capturing stronger upside when tech outperforms[1][2].

Investing in the iShares US Technology ETF offers a suitable choice for a long-term portfolio. Growth stocks, including the iShares US Technology ETF, tend to fall harder during market pullbacks but can likely recover and reach new highs given enough time. However, its higher beta (~1.24) also indicates potentially greater volatility compared to the broader market[1].

[1] Source: Morningstar.com as of July 17, 2025 [2] Source: FactSet as of July 17, 2025 [3] Source: iShares.com as of July 17, 2025

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