Canadian tech stocks are a rare species. If we look at the iShares Canadian capped tech stock ETF (XIT), it holds..brace yourself…a whopping ten stocks in its portfolio. Compare this to the widely followed SPDR technology ETF (XLK) which holds 71 US stocks.
Is the Canadian tech sector worth buying, given the rabid moves on the US tech markets? In my opinion, you are better off picking the individual components rather than buying an ETF for the Canadian tech space. Thats because 70% of this Canadian ETF is weighted in only 4 stocks. If you don’t love those stocks at the same time, there is no point in buying the ETF for diversification. You aren’t getting much diversification in this concentrated play.
Lets take a look at those 4 power-play stocks that drive the Canadian technology space. Are they attractive looking stocks?
CGI
GIB.A-T is the biggest component of the shares tech ETF. It weighs in 22.6% of the ETF’s holdings. At ValueTrend, we hold a position in GIB.A. Its in an uptrend, above its 200 day MA and all of that good stuff. Currently its treading a bit of water, but there are no signs of breaking the bigger trend. OK. So lets say thumbs up to GIB.A. Note the very strong similarity between the GIB.A chart and CSU below vs. XIT. No wonder, given their weightings!
Constellation Software
CSU-T is the next largest holding in the ETF at a 19.5% weighting. This stock is clearly in an uptrend. Like GIB.A, we’re looking at higher highs and higher lows, and a nice 200 day MA. Whats not to like about that? Thumbs up to CSU.
Shopify
SHOP-T is not in an uptrend. This stock has been consolidating since April of last year. While not bearish, its not a buy from a technical perspective unless it breaks out of the consolidation pattern. That would mean a take-out of about $150 or thereabouts. Thumbs down to SHOP, which represents over 15% of the ETF’s weighting.
Open Text
OTEX-T is similar to Shopify in that it has been consolidating since early 2017. A break above $48 would need to be seen before I became interested in this stock. Thumbs down to OTEX which also represents about 15% of the iShares CDN technology ETF.
Conclusion
With some 30% of the ETF’s weighting in clearly sideways trading stocks, why would you buy the index? Clearly, the stronger charts of CGI and Constellation Software would be offset to a large degree by the dead weight of Shopify and Open Text. As noted above, we own CGI. I’d not hesitate to own Constellation too. But I’d avoid the ETF, given the charts of the next most significant stocks.
As an aside, Blackberry (BB-T) does appear to be breaking out, and its weighted as 10% of the ETF. So again, it could be an individual stock worthy of examination within the Canadian tech space. The other 4 stocks in the ETF represent only 1-2% (approximately ) each and don’t offer very good charts at all – hence my decision not to mention them.
Keith on BNN Monday January 8th 2018 at 5:30pm
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Keith appears regularly on BNN MarketCall to answer viewer questions on the technical analysis of stock trends, and to provide unique insights on the factors of technical analysis used in successful investment management.
I would prefer these ETFs: TXF.TO & TXF-B.TO
The only difference between them is whether it is CAD hedged or not.
They do covered calls gives a bit extra yield.
So split your BUYs between the two of them and eliminate the currency uncertainty.
As you the know semi-conductor market is on fire. Which semi-conductor stock’s chart pattern suggest a buy now in your opinon?
the SPDR semi conductor ETF (XSD) has been consolidating since November. It tried breaking out recently, but moved back to the breakout point. Looks ok, but I would prefer to put new money into it only if the $75 point is definitely broken to the upside
Thanks Keith,
What do you think about SWKS(Skyworks Solutions Inc.), as it has a potential large bullish continuation cup and handle pattern began in June 2015. If it crosses the $112 on the handle on volume it may be good entry point;even more so if it pushes past resistance at $117. What about OTEX , as a AI play, as you have written about it before but did not find it favourable at the time. What about now?
Silver–i try not to do individual stocks on this blog –can you call when I’m on BNN april 2nd at 1:00pm with that question? Or email it in to BNN for me to answer–thx