Based on 2015 estimates, the S&P 500 trades at 16.4 times earnings, but XLK is at 15.8 times this year’s expected earnings. On the basis of price to earnings growth and price to free cash flows, XLK is also slightly less expensive the S&P 500, according to AltaVista data.
For now, XLK’s near-term fortunes are likely to be determined by Apple. XLK is a market cap-weighted ETF, so as Apple’s market value increases, the stock’s footprint in XLK does the same. On Jan. 27, the day Apple reported fiscal first-quarter results, XLK entered the day with a 16.5% weight to Apple. At Tuesday’s close, XLK’s Apple allocation had ballooned to 17.7%, 900 basis points above the ETF’s weight to Microsoft (NasdaqGS: MSFT), its second largest holding. [Apple’s ETF Footprint on the Rise Again]
“We’ve broken out to the upside. I see this as a big secular turnaround with a very big base to help incite further outperformance in the years ahead,” said Wald of XLK to CNBC.
Technology Select Sector SPDR
Tom Lydon’s clients own shares of Apple and Microsoft.