ETF overview: Information technology, Consumer staples, Emerging markets

07/04/2022 | 05:20am EDT

The world has never been more connected. While e-commerce and remote working soared during the pandemic, the current inflation and the possible recession led consumer back to essential products. Today, I’ll present you three ETFs based on information technology, consumer staples, and emerging market. Here are three ETFs that can help: The Vanguard Information Technology ETF (VGT), the iShares U.S Consumer Staples ETF (IYK), and the iShares MSCI Emerging Markets ETF (EEM).

Vanguard Information Technology ETF (VGT):

The VGT is built to track and index: the “MSCI US IMI Information Technology 25-50 Gross total return USD Index”. This share class generates a stream of income by distributing dividends. It provides physical exposure in more than 346 holdings, 15 of which represents 67,97%. Apple is VGT’s largest holding with 23,25%, which is good for the ETF as the company has a strong financial foundation with a rising Free Cash Flows, EBITDA and ROA. However, this ETF is only focused on one country: the US (99,3%) as well as one sector: Information Technology (99,3%).

What’s good about this ETF:

Global demand for Technological products continues to grow as a result of population growth, international exchanges, and a race to be the country the most-developed. According to the World Economic Forum’s 2018 Global Competitive Index, the United States has a competitive edge thanks to business dynamism, strong institutional pillars, financing mechanisms, and a vibrant innovation ecosystem. Innovation is a trademark feature of American competitiveness and can lead the world in generating advanced technologies and leveraging the full productive capacity of their digital economies can gain a strategic competitive advantage. Digital technologies have risen to prominence as a critical determinant of economic growth, national security, and international competitiveness. The digital economy has a profound influence on the world’s trajectory and the societal well-being of ordinary citizens. It affects everything from resource allocation to income distribution and growth. The United States still have a competitor advantage and represent the major part information technology industry worldwide with 35% in 2022 against 31% for China.

Statista: Distribution of the information technology (IT) industry worldwide from 2019 to 2022 by region

iShares U.S Consumer Staples ETF (IYK):

The IYK is issued by iShares and provides exposure to large cap US Consumer Staples Equities. The investment objective of the funds is to seek total return where the fund’s investment strategy is to focus on distributions and current dividends paid to shareholders. The ETF offers slight diversification with 55 companies spread across one geography and two main sectors. In fact, it is 100% based in the U.S. for 90,4% in Consumer staples, 7,3% in Health care and 2,3% in Others. At the same time, the 15 major companies that make up this ETF have a strong balance sheet, with good growth prospects and thus account 75,06% of it. Despite an increase of 6,43% over the past year, it slightly decreased by 2.18% over the past six months, which is a good performance compared to other similar products.

What’s good about this ETF:

The Consumer Staples sector has seen an increase in investment made in data analysis and technology. Stores are working closely with staples companies to ensure the appropriate amount of inventory is delivered to increase product sales and product turnover. At the same time, many companies in this sector should grow over the next year thanks to emerging market like China. The pandemic also helped e-commerce. 

iShares MSCI Emerging Markets ETF (EEM):

This ETF provided by iShares supplies exposure to large and mid-cap emerging market equities, that may be better positioned to benefit from the economic development in Asia. The ETF is composed of 1180 companies for a representation in five countries: China (29,9%), Taiwan (15,3%), India (13,5%), South Korea (12,2%) and Other (29%) in five sectors: Information technology (25,7%), Financials (22%), Consumer discretionary (12,8%), Materials (9%), and Others (30,5%). It has some difficulty to grow, and vary between rise and fall, according to its graph. Nevertheless, it reached $58,80 in 2021 (its highest point) and its current price is $39.49 and a rebound in the coming weeks is possible. 

What’s good about this ETF:

Since the late 1980s, the economies of emerging markets have been evolving-structural change-driving innovation and growth for local consumers. This compares to a time when emerging markets relied solely on the production and export of raw materials. For example, in 2008, commodity and materials stocks made up 50% of the MSCI Emerging Markets Index. At the same time, emerging economies should be resilient, as their public, household and corporate debt levels are generally lower than those of advanced economies. Banks in emerging economies are well capitalized and well positioned to take advantage of financial deepening as emerging households open bank accounts, adopt credit cards, and take out mortgages. China, Korea, and Taiwan offer significant opportunities in e-commerce, online gaming, and other emerging technologies.

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