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 & ServicesCompanies 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 ServicesCompanies that provide IT services or systems integration services, including IT consulting and information management.
Data Processing & Outsourced ServicesCompanies that provide data processing or outsourcing services, including back-office automation services.
SoftwareApplication SoftwareCompanies that develop and produce software for business or consumer use, including enterprise applications and technical software. This excludes home entertainment and educational software.
Systems SoftwareCompanies that develop and produce database management software and systems.
Home Entertainment SoftwareCompanies 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 EquipmentCompanies 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 & PeripheralsCompanies 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 & InstrumentsCompanies that produce electronic equipment, including scanner/barcode products, lasers, point-of-sale machines/cash registers and security systems.
Electronic ComponentsCompanies that produce electronic components, including transformers, electronic capacitors and resistors, electronic coils and connection devices.
Electronic Manufacturing ServicesCompanies 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 DistributorsCompanies 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 EquipmentCompanies that produce semiconductor equipment, including manufacturing raw materials and creating equipment used in the solar power industry.
SemiconductorsCompanies 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

VGT0.10%

Vanguard Information Technology Index Fund Admiral Shares

VITAX0.10%

Fidelity MSCI Information Tech ETF

FTEC0.12%

Technology Select Sector SPDR

XLK0.14%

PowerShares S&P SmallCap Information Technology ETF

PSCT0.29%

SPDR Morgan Stanley Technology ETF

MTK0.35%

Market Vectors Semiconductor ETF

SMH0.35%

SPDR S&P Semiconductor ETF

XSD0.35%

SPDR S&P Software & Services ETF

XSW0.35%

Guggenheim S&P 500 Equal Weight Technology ETF

RYT0.40%

SPDR S&P International Technology Sector ETF

IPK0.40%

Nationwide Ziegler NYSEArcaTech100 Fund Class I

NWJEX0.42%
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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.