As in any other index fund, technology index funds are primarily a benchmark for performance in that sector of the stock market. Technology funds are mutual funds comprised of stocks in various portions of the technology sector and throughout time various portions of that sector wane and wax so that proportions of the technology index will not be the same year after year, or for that matter, even day after day. Even so, technology index funds provide a glimpse into exactly what the technology sector is doing at any given time and as a result, how technology funds comprised of technology stocks are doing as well.

Segments of the Technology Sector

While segments within the technology sector change a bit from day to day, most often the proportions are approximately the same unless some exciting innovation is developed which creates a stir in the market. As of March, 2011 the breakdown of the technology sector is as follows:

• Software – 19.7%
• Computers & Peripherals – 17.66%
• IT Services – 16.93%
• Semiconductors & Semiconductor Equipment –  15.01%
• Communications Equipment – 12.12%
• Internet Software & Services – 9.45%
• Electronic Equipment & Instruments – 4.57%
• Internet and Catalog Retail – 3.77%
• Office Electronics –  .62%
• S – T Securities – .10%
• Other – .01%

If you were to add up all those percentages you would see that this represents the sum total of the technology sector of the market which is what those indices point to.

Technology Index Leaders First Quarter 2011

The amazing thing about the technology index is that only ten of the thousands and thousands of companies hold greater than 50% of all technology stocks. Bear in mind that it is these stocks that add or take value away from a market index and are indicative of just what that market sector is doing. This is why technology index funds are so vital with respect to the technology portion of the market. They give investors a good assessment as to what technology is doing at any given moment in time. At this very moment, the following ten companies are provide this view into the market:

• Apple, Inc. – 8.91%
• International Business Machines Corp. (IBM) – 7.36%
• Microsoft Corp – 7.20%
• Google Inc. – 5.55%
• Oracle Corp – 4.73%
• Intel Corp – 4.22%
• Cisco Systems, Inc. – 3.62%
• Hewlett – Packard – 3.53%
• Qualcomm Inc. – 3.33%
• Amazon dot Com  Inc – 2.30%

Although some of those mentioned may swap places a bit over time, it really takes some cataclysmic or fortuitous event to swap those positions up. Note that these figures were taken directly from the iShares S&P Technology Sector Index Fund. If you were to look on the AMEX, NASDAQ or the NYSE you might find varying results but usually within just a few points.

By investing in technology index funds it is possible to actually play the market without actually buying individual stocks. This significantly reduces the risk involved in trading on the stock market while still having the ability to cash in on those stocks when they do well. Conversely, the concept of technology index funds is to mitigate the investors’ potential for loss since there are a great number of underlying assets (technology stocks) spanning the technology sector within the index fund. Some index funds focus on certain segments of the technology sector (i.e. Internet Technology Services and Internet Software and Services) while others provide a spread representing all or most segments of that sector. In any event, when seeking technology index funds to invest in, the safest investments are those which provide the greatest diversity.