None of the nine sector SPDR exchange traded funds can hold a candle to the nearly 12% returned by the Health Care Select Sector SPDR (NYSEArca: XLV), but the Technology Select Sector SPDR (NYSEArca: XLK) has climbed an admirable 4.7.
With many of XLK’s marquee holdings listed on the Nasdaq and the Nasdaq Composite surpassing dot-com era highs, there are good reasons to consider tech ETFs such as XLK at the moment.
“Angelo Zino, an equity analyst at S&P Capital IQ, believes there are number of catalysts that should support sector growth. Within hardware and storage, he expects double-digit smartphone growth in 2015 and 2016 to be augmented by tripling in wearables, albeit off a smaller base. He adds that data centers usage for cloud adoption is providing robust growth prospects to offset traditional storage,” according to a new research note from S&P Capital IQ.
XLK has gained acclaim, in part, because of its 17.7% weight to Apple (NasdaqGS: AAPL). That is one of the largest weights to the iPhone maker among all ETFs. Microsoft (NasdaqGS: MSFT) is XLK’s second-largest holding at a weight of 9%. High-flying Facebook (NasdaqGS: FB) is XLK’s fifth-largest holding. That stock is up 12.3% and on Tuesday surpassed Wal-Mart (NYSE: WMT) in terms of market cap heft. [ETFs With big Apple Weights]
Semiconductor stocks have also been contributors to this year’s tech sector upside with the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) up 5.5%.
“Zino expects that semiconductor fundamentals will experience a stronger second half of 2015 as PC inventory builds and Chinese demand for smartphones and mobile infrastructure increases,” according to S&P Capital IQ.
S&P Capital IQ has four-star ratings on Dow component Intel (NasdaqGS: INTC), Avago Technologies (NasdaqGS: AVGO) and Microchip Technology (NasdaqGS: MCHP). The research firm is bullish on long-term semiconductor industry capital spending plans. [Intel Woes Highlight Differences in Chip ETFs]
“Ten of the 52 companies comprising the S&P 1500 semiconductors & semiconductor equipment industry each hold more than $2.8 billion of cash and equivalents on their balance sheets led by Intel,” notes S&P Capital IQ.
S&P Capital IQ has overweight ratings on XLK and SOXX. Despite the solid performances offered by those ETFs, investors have pulled a combined $430.8 million from the two funds this year.
Investors have added $554.7 million to the Vanguard Information Technology ETF (NYSEArca: VGT), which is up 5.6% this year. VGT had a 16.8% weight to Apple, a Microsoft weight of 8.1% and a 3.5% Facebook allocation at the end of May. S&P Capital IQ rates the ETF overweight.
Technology Select Sector SPDR
Tom Lydon’s clients own shares of Apple.