Spotlight on the tech sector

In July 2013, the S&P/TSX Capped Information Technology Index was trading just under 30, with a 52-week high of 33.86. Just a year earlier, this same index could barely hit 23. These equities are also doing well in the U.S.: tech stocks posted their best 10 weeks since 2009 at the end of June.

But there are few major technology companies in Canada, says Bill Carrigan, the Ontario-based founder of financial analysis provider Getting Technical. The domestic tech sector accounts for only 1.6% of the S&P/TSX Composite Index.

BlackBerry is dominant on the TSX, and the S&P/TSX Capped Information Technology Index has only seven constituents. Besides BlackBerry, the companies are:

• Celestica Inc., Toronto (electronics manufacturing)
• Constellation Software, Toronto (software)
• CGI Group, Montreal (information technology provider)
• MacDonald, Dettwiler and Associates Ltd., Richmond, B.C. (aerospace)
• Open Text, Waterloo, Ont. (information management)
• Wi-LAN Inc., Ottawa, Ont. (intellectual property licensing)

Breaking down the sector

• Companies in the tech sector may include:

• Software developers

• Networking services

• Security and IT services

• Nanotechnology development (microchips)

• Semi-conductors

• Aerospace

• E-commerce and payment solutions (transaction processing)

• 3-D printing

• Media platforms and devices (tablets, smartphones)

• App developers

• Social media

• Smartphone and tablet devices

The index’s three-year average annualized returns are 1.06% as of July 23, 2013.

Some other major TSX tech companies include:

• Catamaran, Lisle, Ill. (medical software)
• Davis and Henderson, Toronto (banking, payment solutions)
• Descartes Systems Group, Waterloo, Ont. (logistics)
• Enghouse, Markham, Ont. (software)

In comparison, the S&P 500 Equal Weighted Information Technology Index in the U.S. includes more than 60 companies. It posted steady performance over the past three years, with average annualized returns of 15.32% as of July 23, 2013.

Retail and novice investors are best served by sticking with established companies or by “buying a broader basket—for instance, iShares Info Teck ETF (XIT)—which can capture beta if markets are performing and sectors are appreciating,” Carrigan says, though these products also drop faster than markets if tech falls out of favour.

Katie Keir is assistant editor of Advisor Group.