IGV (iShares-Blackrock) replicates an index composed of the 57 leading North American software and technology companies.
The IGV ETF is traded on the US marketplaces, and therefore quotes in US $ while ETF fees are 0.48% and AUM at $ 1002.6M.
Among the top 10 companies in the index are listed companies such as Microsoft ($ 556bn market capitalization), Oracle ($ 202bn), Adobe ($ 74bn $) or Salesforce ($ 65bn), which represent approximately 58 % of the index. In addition to being relatively profound, this index has the advantage of grouping together companies that operate in different markets and which are usually not direct competitors, or at least only on certain divisions, while some companies like Electronic Arts are in a very specific business, in this case the video games. This leads to a fairly diversified index, with companies that are often the world leader in their market.
One of the advantages of this index is that American companies clearly dominate the software industry and the quality of the companies that make it up is truly exceptional.
The performance of this ETF is impressive, with more than 186% in 10 years, a positive performance relative to the US indices, including Nasdaq Composite. Moreover, the volatility of the index was reasonable, excluding the 2008/2009 krach. The software publishing sector is characterized by strong margins (which can exceed 30% of operating profit) and a generation of cash among the strongest in all sectors, as the capital intensity consists mainly of research and development and Marketing expenses. In addition, a major trend, the "cloud" of relocating applications from the enterprise server to the network, currently represents a strong vector for growth for publishers and will eventually result in much more regular revenue (monthly billing instead of one-off investment).
The companies that make up the index are evolving in different universes, ranging from the world of PCs and tablets (Microsoft, Symantec, etc.) to enterprise software and databases (Oracle, Salesforce) The video games publishing (Activision, Electronic Arts), or even systems security; in some cases these companies adress corporates (BtoB) or directly the final customer (BtoC). US software stocks have high multiples but still have strong growth prospects in the short and medium term. Moreover, these companies hold leading positions in the world, which constitute considerable barriers to entry. Investing in the ETF IGV means continuing to invest in American supremacy in the software industry, which has not yet been denied and is constantly renewed.
The digitization of companies (and especially banks) should be a positive trend for the industry, while the leaders' strong cash positions should favor acquisitions in the coming months. Current valuations are very demanding (around 38x current earnings) but growth rates are expected to reach double digits in 2017 and 2018, combined with a large generation of cash flow.
