Investment in Software

This is not the year 2000 and we usually do not talk much about software companies nowadays. In case you did not notice, you may get surprised by knowing how Software stocks bounced back from the slump the whole stock market had in early summer days. The Dow Jones U.S. software index, which tracks 55 companies has outperformed the technology-laden Nasdaq composite with a widening margin, improving about 18% compared with the Nasdaq's 8% gain.

Trends in both packaged software - that are directed at consumers with price tags somewhere between $100 and $1,000, - and big enterprise applications are driving investor interest in the sector higher than usual. There are a number of forward-looking news in this sector: Adobe Systems Inc. is releasing a new version of Acrobat in November, and of its Creative Suite, which includes Photoshop, early next year. Adding to the fervor is the much-anticipated release of Microsoft's long-awaited operating system upgrade, Vista, plus a new version of OSX from Apple Computer Inc.

The best way to invest in this sector is to buy Exchange Traded Funds (ETF) like iShares Goldman Sachs Software Index (IGV), Powershares Dynamic Software (PSJ) or Merrill Lynch's Software HOLDRS Trust (SWH).

The Top 10 holdings of IGV are: Oracle, Microsoft, Symantex, Adobe, Electronic Arts, Computer Associates, Intuit, Autodesk, Amdocs and Citrix. Today the fund closed at $43.80 -- up by $0.85 or about 2% from yesterday's closing value.

The Top 10 holdings of PSJ are: Intuit, Oracle, Microsoft, Fiserev, Red Hat, Cadence Design, BEA Systems, Citrix, Reynolds and Reynolds, CSG Systems. Today the fund closed at $18.54 -- up by $0.43 or about 2.37% from yesterday's closing value.

The 17 issuers of underlying securities represented by SWH, as of August 1, 2005, were Adobe, BMC Software, Computer Associates, Check Point Software, Intuit, Macromedia, Mercury Interactive, Microsoft, Micromuse, Nuance Communications, Openwave Sys, Oracle, Sap Aktiengesellschaft, Sapient Corporation, Siebel Systems, Symantec, Tibco Software. Today the fund closed at $39.70 -- up by $0.96 or about 2.48% from yesterday's closing value.

[Disclosure: We own IGV in our personal portfolio]