Hedge your bets in the technology industry

Article Excerpt

The technology industry can be extremely profitable—for those companies that get it right. However, the industry is dynamic and highly competitive, leaving a graveyard full of failed startups and once successful companies that were overtaken by competitors. Investors in this segment need to be extremely knowledgeable about the companies and industry, or perhaps follow a less risky approach by investing in a broadly diversified technology ETF. Technology-focused companies form a major part of the publicly listed equity market universe. In the FTSE Global All Cap Index, which covers developed and emerging markets, technology stocks represent 17.6% of the index, almost on par with the largest sector, financial services. Profits not evenly shared Not all sub-components of the broadly defined technology segment are equally profitable; some sub-groups, such as semiconductors, are more cyclical and others, such as software, face high levels of competition. Software: Software is generally cyclical, in line with the normal broader economic cycles. When recessions arrive, companies typically curtail their information technology budgets…

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