Under the Spotlight Wall St: iShares U.S. Tech Independence Focused ETF (IETC)

Donald Trump’s trade war has left U.S. tech investors with whiplash.

Take the Nasdaq Composite, battered by a slump from February to April that pushed tech stocks into a bear market (defined as a decline of 20% from a peak). It then rallied more than 20% in a mere 23 days, entering a bull market this week. 

The reversal in fortune was sent into overdrive as the U.S. and China reached a temporary trade truce last weekend. The cooling of trade tensions encouraged investors to swoop on the tech sector and its strong earnings growth linked to AI, cloud and big data. The iShares U.S. Tech Independence Focused ETF ($IETC) has enjoyed the ride, rallying 30% off its April low. 

It’s important to remember the truce – and lower tariffs – between Washington and Beijing is only for 90 days. This is where IETC stands out compared to other tech ETFs: its portfolio is composed of stocks with a higher proportion of their technological capabilities, revenues and production in the U.S. While most tech stocks have some exposure to China, this ETF does provide U.S. tech bulls a bit of a hedge if ongoing trade negotiations sour. 

The ETF charges an annual management fee of 0.18% and pays quarterly distributions. It’s delivered an average annual total return of 18.55% since its inception in 2018.

Team America

U.S. Tech Independence Focused ETF is structured differently from most tech ETFs, which give greater weight to Magnificent Seven flagbearers like Apple ($AAPL), Microsoft ($MSFT) and Nvidia ($NVDA). IETC’s top two holdings at 9 May were Broadcom ($AVGO) and Palantir ($PLTR), which collectively account for a 21% weighting. Nvidia, Amazon ($AMZN), Microsoft and Apple are still in the top 10, but there is no Tesla ($TSLA) in the portfolio.  

Broadcom is the largest holding in the ETF at 12.8%. It’s a chunky exposure to a stock that’s rallied 59% from its April low, pushing its market cap back above US$1t this week. Broadcom is looking to challenge Nvidia with innovative technology targeted at AI models. Nvidia’s graphics processing units (GPUs), which can do multiple calculations at one time, can deal with large datasets for AI training. However, Broadcom’s XPUs are designed to deliver specialised AI processing power by focusing on a specific task. This allows for more efficient computing. While Broadcom’s Q1 revenue grew 25% year-on-year, its AI revenue grew 77% YoY. 

Data analytics provider Palantir Technologies has also delivered for IETC. Accounting for around 8% of the portfolio, the US$280b company has rallied 73% from its April low. Founded by Silicon Valley billionaire Peter Thiel, the company helps governments (including the U.S. military and intelligence agencies) and companies manage and optimise their data. Palantir has embraced AI to help manage datasets. Strong demand allowed Palantir to raise its full year revenue guidance to US$3.89b-3.90b, from its earlier forecast of US$3.74b-US$3.76b. 

Not just ‘tech’

The ETF offers exposure to more than just tech as we know it. Yes, it has members of the Magnificent Seven and other notables like Oracle ($ORCL) and Salesforce ($CRM). But it also offers access to stocks like Accenture ($ACN), a leading strategy consultant that helps other companies with their technology. It’s the eighth largest holding at 2.95%. The company booked an additional US$1.4b of generative AI work in its latest quarterly earnings. 

Intercontinental Exchange ($ICE), another major holding, is the big daddy of global exchanges: it owns the New York Stock Exchange, the world’s largest. It’s been at the forefront of digitising markets and its technology is vital to providing access to the world’s deepest pools of capital. Beyond stocks, prices for the world’s most important commodities – like oil and natural gas – are formed on its exchanges every day. ICE delivered record revenues and earnings in Q1.

The ETF also offers exposure to some of the world’s leading aerospace and defence names. Boeing ($BA), which is in the top 20 stocks, has put the turbulence of recent years behind it: its shares are up close to 50% from their April lows as Q1 deliveries increased by 57% YoY. Boeing got a boost from this week’s trade truce as well, with China lifting a ban on its planes. Lockheed Martin ($LMT), which produces F-35 and F-22 fighter jets, is also in the portfolio.

Expectations game

The easing of trade tensions allows investors to refocus on what really matters for stocks: earnings. Tariffs have hung over the earnings outlook, but the trade agreements recently negotiated should (hopefully) give management teams more confidence about global sales and international supply chains. 

The Q1 earnings season has been kind to tech investors. The information technology and communication services sectors have the highest percentages of companies reporting revenues above estimates, with 87% and 85% respectively, according to FactSet. 

The information technology sector is reporting the highest YoY Q1 revenue growth rate of all eleven sectors, at 12.1%. Q2 YoY revenue growth is expected to be around 11%. 

Flying the flag

U.S. tech stocks are back, thanks to cooler heads prevailing in the game of trade chicken between Washington and Beijing.

The iShares U.S. Tech Independence Focused ETF offers both access to innovation and a buffer by weighting towards companies with a greater share of their business in America. Tech stock fans could benefit from wrapping themselves in the Stars and Stripes just in case hostilities resume after 90 days of tariff respite. The clock is ticking. 

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. As always, do your own research and consider seeking financial, legal and taxation advice before investing.