Exchange-traded fund Merrill Lynch's Internet HOLDRS (HHH) is currently a good buy for investors interested in technology-oriented stocks, according to Kevin Mahn, Portfolio Manager of the The SmartGrowth Lipper Optimal Moderate Index (LPMAX).
During the recession, Mahn said, ETFs like HHH will be leaders as the economy transitions into a bull market. Because there is much recovery yet to be made in the economy, technology is a good bet.
Mahn cautioned that there was still time for a potential downturn in the second quarter, although HHH was holding strong.
“Companies are trying to emerge from a period of lower earnings and low capital earnings, and so the first place they are going to look is to technology to promote brand awareness,” Mahn said.
Because many companies will be emerging from “dormant sales” in the next 12 months, Mahn said that e-commerce was becoming a more cost-attractive and convenient way to reach one’s target market. As such, technology-heavy HHH is up by 27% already this year, Mahn said.
Mahn said that while many people will purchase their own technology stocks, it can often be time consuming -- like looking for a “needle in a haystack.” HHH affords investors to purchase “the whole haystack” without a lot of looking around.
“If you don’t have the time or expertise to know which Internet companies to buy, buying HHH allows you to invest in an index or a whole combo and get a guaranteed predictable rate of return.” Mahn said.
HHH typically holds a varied number of technology companies, that include names such as Amazon (AMZN) and eBay (EBAY).
LPMAX has somewhere between $10 million and $15 million in assets, and Mahn said that his company was allocating somewhere between 10% and 15% toward HHH and another technology-centric ETF, (SMH), which trades in the semiconductor industry.
In the past year, HHH has traded in a range of $23.20 to $59.56, and currently trades at $41.48, up by $0.56 or 1.37% in the last 24 hours.
Mahn said the one thing investors should be cautious of when investing in an ETF is that “not all ETFs are not created equally.” He said that because they trade differently, it will have an impact on tax consequences.
“These particular funds only trade in round lot increments of 100 shares, so you have to buy and sell in 100-lot increments, so for someone who has a less than robust strategy, they are fantastic and innovative products, but do your homework to find out what they are and any potential limitations,” Mahn said.
