Information Technology Sector: Overview and Funds
Information Technology Sector: Overview and Funds
The information technology (IT) sector is comprised of companies that produce software, hardware or semiconductor equipment, or companies that provide internet or related services. The three major industry groups within the IT sector are software and services, technology hardware and equipment and semiconductors and semiconductor equipment. These three industry groups are further divided into industries and sub-industries. Companies are aligned to a specific sub-industry that best describes their core or most profitable business. In this guide, we will cover the various industries and sub-industries that make up the three major industry groups within the IT sector.
Software and Services
The software and services industry group is made up of companies that provide internet services, as well as companies that provide software and IT services. Internet services include companies that provide online databases or interactive services, such as search engines or social networks. IT services includes companies that provide IT consulting or data processing services to other companies. Finally, software consists of any sort of software for business or consumer use, ranging from enterprise software and systems software to video games.
Industry | Sub-Industry | Description |
|---|---|---|
|
Internet Software & Services | Internet Software & Services | Companies that develop and market internet software or provide internet services, including online databases or interactive services. This also includes companies whose revenue mainly comes from online advertising. |
|
IT Services | IT Consulting & Other Services | Companies that provide IT services or systems integration services, including IT consulting and information management. |
| Data Processing & Outsourced Services | Companies that provide data processing or outsourcing services, including back-office automation services. | |
| Software | Application Software | Companies that develop and produce software for business or consumer use, including enterprise applications and technical software. This excludes home entertainment and educational software. |
| Systems Software | Companies that develop and produce database management software and systems. | |
| Home Entertainment Software | Companies that produce home entertainment software, such as video games, and educational software for consumer use. |
Examples of companies that provide software and services include Google, eBay, Facebook, Accenture, PayPal, Adobe, Microsoft and Electronic Arts (EA).
Technology Hardware and Equipment
Technology hardware and equipment is broken down into three industries: communications equipment, technology hardware, storage and peripherals and electronic equipment, instruments and components. Communications equipment includes routers, telephones and switchboards. Technology hardware, storage and peripherals includes computers, printers and cell phones. Electronic equipment, instruments and components include companies that make equipment like barcode scanners, transformers and security systems, as well as companies that are distributors or Original Equipment Manufacturers (OEM). An OEM is a company that makes parts or components that are used in another company’s end product. For example, many Dell computers use Intel processors and have Windows pre-installed--Intel and Microsoft could be considered OEMs for Dell.
Industry | Sub-Industry | Description |
|---|---|---|
|
Communications Equipment | Communications Equipment | Companies that produce communication equipment, including local area networks (LAN), routers, telephones, and switchboards. This excludes companies that make cell phones. |
|
Technology Hardware, Storage & Peripherals | Technology Hardware, Storage & Peripherals | Companies that produce cell phones, PCs, servers, electronic computer products and peripherals. This also includes motherboards, audio and video cards, monitors, keyboards and printers. |
|
Electronic Equipment, Instruments & Components | Electronic Equipment & Instruments | Companies that produce electronic equipment, including scanner/barcode products, lasers, point-of-sale machines/cash registers and security systems. |
| Electronic Components | Companies that produce electronic components, including transformers, electronic capacitors and resistors, electronic coils and connection devices. | |
| Electronic Manufacturing Services | Companies that produce electronic equipment as an Original Equipment Manufacturer (OEM). An OEM is a company that makes a part or component that is used in another company's end product. | |
| Technology Distributors | Companies that distribute hardware and technology equipment to other companies, but do not produce this equipment or sell it to consumers. This includes companies that distribute communications equipment, computers and semiconductors. |
Examples of companies that produce technology hardware and equipment include Apple, HP, Dell, Motorola, Cisco Systems, SanDisk and Western Digital.
Semiconductors and Semiconductor Equipment
Semiconductors are substances that can conduct electricity under some conditions, but not others, making them ideal for controlling electrical currents. Silicon is a material that is frequently used as a semiconductor. This industry group includes both companies that make semiconductors and companies that make peripheral equipment for semiconductors.
Industry | Sub-Industry | Description |
|---|---|---|
|
Semiconductors & Semiconductor Equipment | Semiconductor Equipment | Companies that produce semiconductor equipment, including manufacturing raw materials and creating equipment used in the solar power industry. |
| Semiconductors | Companies that create semiconductors, including companies that make solar modules and cells. |
Examples of companies that make semiconductors and related equipment include Intel, Microchip Technology, Nvidia, QUALCOMM and Texas Instruments.
Information Technology Sector ETFs and Mutual Funds
Listed below are over 200 ETFs, index funds and mutual funds that track the information technology sector or specific industries, such as semiconductors or internet software. The expense fees of the funds below range from 0.10% to 2.80%.
Name | Symbol | Expense Ratio |
|---|---|---|
|
Vanguard Information Technology ETF | VGT | 0.10% |
|
Vanguard Information Technology Index Fund Admiral Shares | VITAX | 0.10% |
|
Fidelity MSCI Information Tech ETF | FTEC | 0.12% |
|
Technology Select Sector SPDR | XLK | 0.14% |
|
PowerShares S&P SmallCap Information Technology ETF | PSCT | 0.29% |
|
SPDR Morgan Stanley Technology ETF | MTK | 0.35% |
|
Market Vectors Semiconductor ETF | SMH | 0.35% |
|
SPDR S&P Semiconductor ETF | XSD | 0.35% |
|
SPDR S&P Software & Services ETF | XSW | 0.35% |
|
Guggenheim S&P 500 Equal Weight Technology ETF | RYT | 0.40% |
|
SPDR S&P International Technology Sector ETF | IPK | 0.40% |
|
Nationwide Ziegler NYSEArcaTech100 Fund Class I | NWJEX | 0.42% |
When purchasing shares of a fund, you should always research the fund. This includes researching the investment strategy, fees and loads and historical returns. You should also consider your own portfolio allocation and strategy.