ETF Expert: How Good Should We Feel About The Tech Sector Recovery?
05 August 2009 at 4:13 pm by Gary Gordon
With Cisco's revenue falling to $8.5 billion in its quarter ending July 25, 2009, from $10.4 billion in the quarter ending July of 2008, CEO John Chambers suggested that they may have reached a tipping point. The idea that the world's largest manufacturer of routers and switches has hit rock bottom versus "may" have hit rock bottom spooked the market. Cisco shares were down 3.5% in after hours trading.
With Cisco being the lifeblood of the internet, I thought I'd take a peek at tech sector ETFs. Here are a number of performance "stats" for 4 of the more heavily traded vehicles:
| Tech Sector ETFs Through End-Of-July, 2009 | ||||||||
| YTD % | 1/1/08-7/31/09 | % Off High | ||||||
| iShares Goldman Sachs Networking (IGN) | 46.86% | -26.42% | -35.10% | |||||
| Semiconductor HOLDRs (SMH) | 41.68% | -20.62% | -31.01% | |||||
| Vanguard Information Technology (VGT) | 36.62% | -21.89% | -27.20% | |||||
| iShares Goldman Sachs Software (IGV) | 28.24% | -21.05% | -24.39% | |||||
For starters, it's interesting to see levitation and gravity working hand in hand; more specifically, the further a particular ETF fell from its highest point, the quicker it climbed in 2009.
Similarly, the further a tech sector ETF fell from the start of calendar year 2008, the greater its year-to-date gains. For instance, iShares GS Networking (IGN) which holds Cisco is down -26.42% from the start of 2008 while iShares GS Software (IGV) is down less at -21.05%. Yet in the current recovery of calendar 09, Networking is up 47% to Software's 28%.
Yet there's something else that's worth noting here; that is, in spite of the amazing turnaround since March of this year, the bear's damage is quite extensive.
Consider IGN's 47% gains year-to-date. It would need to climb another 54% to make up for being 35% off its highest level. And it's somewhat implausible to expect that 54% can be garnered in 7 months the way the first 47% had been accumulated. In fact, if history is any guide, I'd be generous to assume iShares GS Networking (IGN) would compound at 11.4% to recover the ground in 4 more years.
Hey… but who knows? If a bear can be epic… why not a follow-up bull?!
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Disclosure Statement: ETF Expert is a web log ("blog") that makes the world of ETFs easier to understand. Pacific Park Financial, Inc., a Registered Investment Adviser with the SEC, may hold positions in the ETFs, mutual funds and/or index funds mentioned above. Investors who are interested in money management services may visit the Pacific Park Financial, Inc. web site
