With a spate of earnings reports due out from some of the largest companies in the sector, this promises to be a big week for technology exchange traded funds, such as the Technology Select Sector SPDR (NYSEArca: XLK) and broad market ETFs like the PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100 Index.
Preparing for weeks like this requires investors to do a little bit of investigation into the nuances among various technology ETFs. Ahead of Apple’s (NasdaqGS: AAPL) earnings report after the close of U.S. markets Tuesday (this article was written prior to that), XLK was off more than 2% over the past week. The largest technology ETF by assets is up nearly 2% year-to-date.
Facebook will report results on Wednesday, April 27. Market observers, though, expect the social media company to announce improved ad revenue, especially from its mobile advertising platform. Market cap-weighted tech sector ETFs have a large weighting in the two companies. For example, QQQ has a 11.4% tilt toward AAPL and 4.9% in FB. XLK holds 14.1% AAPL and 6.1% in FB.
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“There are currently 55 exchange-traded funds (ETFs) dedicated to varying subsets of technology stocks. That number can be greatly expanded when you take into account ancillary funds that demonstrate overweight exposure in this area as well,” according to See It Market.
Although it tracks the NASDAQ-100 Index, QQQ actually holds more than 100 stocks.
“Effective with the December 2014 evaluation, NASDAQ OMX will modify the index methodology to allow for inclusion of all of a company’s share classes that meet inclusion criteria of the NASDAQ-100 Index. The index will therefore better reflect the entire market capitalization of the 100 largest non-financial companies listed on The NASDAQ Stock Market,” said NASDAQ OMX in a statement.
Mature tech companies, such as Apple and Microsoft, can help investors generate income by way of steadily increasing dividends. That is a departure from the tech boom of the 1990s when dividends were a foreign concept to the sector.
Traditionally, tech companies have not considered paying back their investors. Instead, many firms opted to reinvest cash back into the company or buy back stocks.
However, times are changing, and the technology sector of the S&P 500 is now among the top dividend issuers. Technology companies began to compensate shareholders during the financial crisis, and the habit stuck.
“XLK is constructed using a market-cap weighted methodology that gives the lion’s share of the assets to the largest stocks. As a result, AAPL represents nearly 14% of the underlying asset allocation,” adds See It Market. “When it comes to size and liquidity, this fund has everyone else beat hands down. XLK has $13.87 billion in total assets and trades average daily volume of more than 11 million shares per day. Furthermore, this technology ETF only charges a modest 0.14% expense ratio as its ongoing management fee.”
Technology Select Sector SPDR
