Over the past month, exchange traded funds tracking new school, sexy areas of the technology sectors have been taken to the woodshed.
The Global X Social Media Index ETF (NasdaqGM: SOCL) is off 16% and trading near levels not seen since late November 2013. The First Trust ISE Cloud Computing Index Fund (NasdaqGM: SKYY) is lower by more than 7% while the First Trust Dow Jones Internet Index Fund (NYSE: FDN) has tumbled 13%. [Momentum ETFs Fall Hard]
Bad performances to be sure, but they are not indicative of the technology sector as a whole. Momentum tech stocks and ETFs have clearly been taken to task, but while that has been happening, ETFs with heavy exposure to older, more traditional tech companies have remained firm.
The Technology Select Sector SPDR (NYSEArca: XLK), the largest U.S. technology ETF and the Vanguard Information Technology Index ETF (NYSEArca: VGT) are each up nearly 4% year-to-date. The iShares U.S. Technology ETF (NYSEArca: IYW) is higher by 5%. [Talking Tech With ETFs]
Gains by those ETFs are made all the more impressive when considering that Apple is the largest holding in each at weights ranging from 12.4% in VGT to almost 16% in IYW. Shares of Apple are lower by 3.7% this year. Excluding Google, the stocks boosting the fortunes of these ETFs have a distinctly “old school tech” feel.
Take XLK as an example. The ETF resides around $36 at this writing. The next time XLK closes above $37 it will be the first time since January 2001. Excluding Apple and Google (NasdaqGS: GOOG), none of the ETF’s top-10 holdings are glamorous or “new school tech.” Six of XLK’s top-10 holdings are Dow components, led by Microsoft (NasdaqGS: MSFT), the ETF’s third-largest holding at 8.7% of the fund’s weight. Even with Friday’s drop, Microsoft is up 4.2% in the past month.
International Business Machines (NYSE: IBM), one of the Dow’s worst performers last year, is up 3.2% while Intel (NasdaqGS: INTC) and Cisco (NasdaqGS: CSCO) are up an average of 5.5%, indicating that tech’s old dogs have risen again.
And old line tech companies are increasingly rewarding shareholders with stronger dividends, which has helped propel the First Trust NASDAQ Technology Dividend Index Fund (NasdaqGM: TDIV) to an all-time high. TDIV turns two in August and has nearly $470 million in assets under management.
Outside of an almost 8% weight to Apple that makes the iPad maker TDIV’s fifth-largest holding, the ETF’s top-10 lineup looks a lot like that of XLK’s, but with different allocations. For example, Microsoft, Intel and Cisco combine for nearly a quarter of TDIV’s weight. [Tech ETFs Become Dividend Destinations]
Tech dividends are low compared to high-yielding sectors like utilities, but that also means there is room for payout growth. TDIV’s trailing 12-month distribution is just 2.3%, but that is far better than what investors will find on an Internet ETF and, more importantly, TDIV and the aforementioned old guard tech ETFs have not recently subjected investors to severe capital loss.
Technology Select Sector SPDR
Tom Lydon’s clients own shares of Apple, Cisco, Intel and Microsoft.