The technology sector is the S&P 500 largest sector and the third-best performer in the benchmark U.S. index this year behind utilities and health care.
But even with the strength displayed by marquee U.S. tech stocks ranging from Apple (NasdaqGS: AAPL) to Microsoft (NasdaqGS: MSFT) to Intel (NasdaqGS: INTC), investors have had reservations about embracing big-name technology ETFs.
For example, the PowerShares QQQ (NasdaqGM: QQQ), the NASDAQ-100 tracking ETF, has lost $8.7 billion this year, more than any other ETF. The Technology Select Sector SPDR (NYSEArca: XLK), the largest dedicated tech sector ETF, is lighter by $2.1 billion, an outflows total exceeded by just four other ETFs.
That despite the fact that XLK is up 15.2% this year, making it the third-best of the nine sector SPDRs. QQQ is higher by 16.5%. [Jitters About Tech ETFs]
Apparently, some investors are realizing they have missed out on a good thing with tech ETFs. Over the past month, QQQ has hauled in $2.52 billion in new assets, by far the most among PowerShares ETFs, according to issuer data.
The return to tech ETFs comes with market observers saying the NASDAQ Composite could return to its pre-tech bubble highs and with at least one technical analyst saying Apple’s chart indicates a run to $150 is possible. That implies upside of nearly 35% for the iPhone maker from Wednesday’s close.
Apple accounts for nearly 14.1% of QQQ’s weight, or more than the ETF allocates to Google (NasdaqGS: GOOG), Facebook (NasdaqGS: FB) and Intel combined.
XLK allocates nearly 16.5% of its weight to Apple, or almost 640 basis points more than the ETF devotes to Microsoft. Although XLK has been hit hard by outflows this quarter, there are signs that situation is abating a bit as the ETF has raked in over $40 million this month.
Buoyed by the strength of older tech names, XLK has outperformed the S&P 500 by 470 basis points this year. Tech’s rise as a prominent dividend sector is encouraging investors to view the some of the sector’s large-cap names as more than just growth stocks.
The average payout increase from Apple, IBM (NYSE: IBM), Cisco (NasdaqGS: CSCO) and Qualcomm (NasdaqGS: QCOM) this year is almost 14%. Those stocks combine for 26.3% of XLK’s weight. [Tech Dividends Power These ETFs]
QQQ’s trailing 12-month yield of 1.31% may not sound like much, but that is about 40 basis points better than the yield on the NASDAQ-100 at the height of the tech bubble. Five QQQ’s top-10 holdings are dividend payers.
Powershares QQQ
Tom Lydon’s clients own share of Apple, Cisco, Facebook, Microsoft and QQQ.