Trumping bouts of volatility and several crashes, the technology sector has been riding high and is an investors’ darling this year. In fact, it is so far the best performing sector of 2015, just behind consumer discretionary. Notably, the S&P 500 Information Technology Sector Index is up nearly 6% versus the gain of 10.10% for the S&P 500 Consumer Discretionary Sector Index and loss of 0.55% for the S&P 500 Index (SPY), as per Fidelity.

Behind the Surge

Most of the gains came from a string of better-than-expected Q3 results from heavyweights such as Apple (AAPL), Microsoft (MSFT), Alphabet (GOOGL), Amazon (AMZN), Netflix (NFLX),Linkedln (LNKD) and Facebook (FB) that have injected a strong momentum into the entire sector, pushing many stocks to multi-year highs. A strengthening economy and better job prospects are also giving a solid boost to the economically sensitive growth sectors like technology that typically perform well in a maturing economic cycle (read: 5 Tech ETFs to Watch on Strong Earnings).

As the world is becoming increasingly digital, demand for novel and advanced technologies such as cloud computing, big data, smartphones, high-speed fiber networks and the Internet of Things are growing by leaps and bounds. These are creating great opportunities for the tech companies. Further, most of the mature tech companies are sitting on a huge pile of cash and are in a position to increase payouts to their shareholders. The cash reserves will ensure that these companies are not plagued by financial trouble even in a rising interest rate environment.  

While most of the ETFs and stocks are crushing the broader market from a year-to-date look, we have highlighted five from each corner of the space that will continue their outperformance in the coming months:

Best ETFs

First Trust Dow Jones Internet Index (FDN - ETF report) – Up 24.8%

This is one of the popular and liquid ETFs in the broad technology space with AUM of over $4.9 billion and average daily volume of about 600,000 shares. The fund follows the Dow Jones Internet Composite Index and charges 54 bps in fees per year. In total, the fund holds a small basket of 41 securities with double-digit allocation each to Amazon and Facebook. From a sector look, Internet mobile applications account for 40% share, closely followed by Internet retail (23%). The ETF has a Zacks ETF Rank of 2 or ‘Buy’ rating with a High risk outlook.

PowerShares Nasdaq Internet Portfolio (PNQI - ETF report) – Up 22.9%

This fund follows the Nasdaq Internet Index, giving investors exposure to 94 stocks. It is heavily concentrated on the top 10 holdings at 61%. Internet software & services makes up for nearly 56% share in the basket while Internet & catalog retail takes 39% share. The product has amassed $292.3 million in its asset base while trades in lower volume of more than 24,000 shares per day on average. Expense ratio came in at 0.60%. PNQI has a Zacks ETF Rank of 2 with a High risk outlook (read: 5 ETF Outperformers with 20% Plus Gains Year to Date).
 

ARK Web x.0 ETF (ARKW - ETF report) – Up 16.9%

This is an actively managed fund focusing on companies that are expected to benefit from the shift of technology infrastructure from hardware and software to cloud enabling mobile and local services. The fund holds 40 stocks in its basket with each security holding less than 5.8%. It has amassed $13.2 million in its asset base while sees light average daily volume of around 2,000 shares. Expense ratio came in at 0.95%.

iShares S&P North American Technology-Software Index Fund (IGV - ETF report) – Up 14.1%

This ETF provides exposure to the software segment of the broader U.S. technology space by tracking the S&P North American Technology-Software Index. The fund holds a basket of 62 securities with slight tilt toward top four firms that collectively make up for 35.8%. It is quite popular with AUM of over $1 billion, while average daily volume is nearly 142,000 shares. The product charges 48 bps in annual fees and has a Zacks ETF Rank of 2 with a High risk outlook.

SPDR S&P Semiconductor ETF (XSD - ETF report) – Up 12.1%

This fund targets the semiconductor corner of the broad technology space and tracks the S&P Semiconductor Select Industry Index. Holding 47 stocks in its portfolio, it is widely spread across securities as none of these allocates more than 3.87% of the assets. The fund is less popular in the semiconductor space with AUM of $213.6 million and trades in moderate volumes of about 165,000 shares a day on average. It charges 35 bps in fees per year and has a Zacks ETF Rank of 3 or ‘Hold’ rating with a High risk outlook (read: 5 ETF Winners from Q3 Earnings Season).

Hit Stocks

For finding out the best performing stocks in the sector, we have used our Zacks Stock Screener and narrowed down the list by selecting stocks having a Zacks Rank #1 or #2 and market cap of above 1 billion. Investors should note that they have the potential to continue their outperformance next year.
 
Globant S.A. (GLOB - Snapshot Report) – Up 136.8%

Based in Luxembourg, Globant is a technology service provider engaged in the designing and developing of Internet-based solutions. The company has delivered a positive earnings surprise of 15.51% over the past four quarters, with the current year earnings expected to grow 22%, much higher than the industry average growth of 13.1%. The stock has a Zacks Rank #2 with a Growth Style Score of B and market cap of $1.26 billion.

MaxLinear Inc. (MXL - Snapshot Report) – Up 131.7%

Based in Carlsbad, California, MaxLinear is a global provider of integrated, radio-frequency analog and mixed-signal circuits for broadband communication and data center, metro, and long-haul transport network applications. The stock has delivered positive earnings surprises in three of the last four quarters, with an average beat of 18.60%. The current earnings estimate for 2015 represents whopping growth of 930% versus industry average of 11.2%. MXL has a Zacks Rank #1 with a Growth Style Score of A and market cap of $1.06 billion (see: all Technology ETFs here).
 
Ebix Inc. (EBIX - Snapshot Report) – Up 102.9%

Based in Johns Creek, Georgia, Ebix is a leading international supplier of on-demand software and e-commerce services to the insurance industry. The company came up with an average positive earnings surprise of 17.10% for the past four quarters. Earnings are expected to grow at 33.5% for the current year, up from the industry average of 9.6%. The stock has a Zacks Rank #1 with a Growth Style Score of F and market cap of $1.16 billion.

Universal Display Corp. (OLED - Snapshot Report) – Up 101.3%

Based in Ewing, New Jersey, Universal Display is a leader in the research, development and commercialization of organic light emitting diode (OLED - Snapshot Report) technologies and materials. The company delivered positive earnings surprises in two of the past four quarters, with an average beat of 69.10%. The current earnings estimate for 2015 represents a substantial growth of 21.5% versus the industry average of 14.2%. The stock has a Zacks Rank #2 with a Growth Style Score of C and market cap of $2.61 billion.

HubSpot Inc. (HUBS - Snapshot Report) – Up 76.5%

Based in Cambridge, Massachusetts, HubSpot is a provider of a cloud-based inbound marketing and sales software platform for businesses in the United States, Ireland and Australia. The company has delivered an average positive earnings surprise of 10.38% over the past four quarters and the current year earnings are expected to grow 66.1%, much higher than the industry average growth of 14.0%. HUBS has a Zacks Rank #2 with a Growth Style Score of C and market cap of $2.02 billion (read: HubSpot Attains a 52-Week High on Solid Momentum).