For all the talk of an Internet and social media bubble and its imminent bursting, some technology sector exchange traded funds are, almost anonymously, delivering new highs to investors.
In about as quiet fashion as a $12.3 billion ETF can operate, the Technology Select Sector SPDR (NYSEArca: XLK) made a new 52-week high Thursday and followed up with another new high Friday. XLK, the second-largest sector ETF by assets behind the Financial Select Sector SPDR (NYSEArca: XLF), has been a beacon of durability and steadiness this year as investors have punished nearly anything with the Internet, momentum or social media labels. [High Quality Over Momentum ETFs]
Up 4.6% year-to-date, XLK has not packed much in the way of excitement, but that has proven to be an advantage. As investors have become leery of the frothy valuations on once beloved Internet and social media offerings, XLK’s comparatively bland (and inexpensive) lineup has firmed.
The ETF has a P/E ratio of 15.44, according to State Street data. Not only is that paltry compared to glitzier tech offerings, it is slightly below the P/E on the S&P 500 and well below the P/E of 18.44 foun on the significantly less glamorous Consumer Staples Select Sector SPDR (NYSEArca: XLP).
XLK’s secret to success in 2014 has already been exposed: Old school tech is working and working well. [Old Guard Rallies Tech ETFs]
XLK’s top-10 holdings include five Dow components – Microsoft (NasdaqGS: MSFT), Verizon (NYSE: VZ), AT&T (NYSE: T), International Business Machines (NYSE: IBM) and Cisco (NasdaqGS: CSCO). All five are among the 19 Dow members that are up year-to-date.
Only four Dow stocks have double-digit year-to-date gains. Microsoft and Cisco, a combined 12% of XLK’s weight, are two of those stocks. Do not forget about Apple (NasdaqGS: AAPL). XLK’s status as one of the ETF’s largest weights to the iPad maker is once again benefiting the fund.
Shares of Apple, 15% of XLK’s weight, are up 15.6% in the past 90 days, indicating that it is not a coincidence that the stock and the ETF both hit new 52-week highs on Thursday. [Tactical Strategies With Sector ETFs]
Another positive catalyst for XLK and rival funds has been the tech sector’s dividend growth. One of the largest contributors to S&P 500 dividend growth, the tech sector’s increasing dividend footprint has been on display in 2014. [Tech ETFs Turn Into Dividend Plays]
The average payout increase from Apple, IBM, Cisco and Qualcomm this year is almost 14%. Those stocks combine for 28.3% of XLK’s weight. That does not include an increase from Microsoft, which XLK’s second-largest holding usually delivers in the second half of the year. Microsoft’s last two dividend increases were 21.7% and 15%, respectively.
Technology Select Sector SPDR
Tom Lydon’s clients own shares of Apple, Cisco and Microsoft.