The Technology Select Sector SPDR (NYSEArca: XLK), the largest technology exchange traded fund by assets, is up 9.3% year-to-date and some market observers are betting on more upside for the S&P 500’s biggest sector weight.
Rivals to XLK include the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) and the Vanguard Information Technology ETF (NYSEArca: VGT). Apple Inc. (NASDAQ: AAPL) is the largest holding in all three ETFs.
While the various sector-specific ETFs provide broad exposure to their targeted segments, investors should keep in mind that there are differences in the different ETF offerings.
For instance, the Select Sector SPDR line of ETFs have more focused or less diversified exposure since they take holdings from the smaller universe of S&P 500 companies. The Vanguard line may have the most diversity with higher number of components.The Fidelity ETFs, though, are the cheapest of the bunch, which may be more appealing to long-term investors.
“Strength in the tech space has been broadly based across small, large- and mid-cap tech stocks, said Ari Wald, Oppenheimer’s head of technical analysis. More granularly, strength can also be found across the sector’s industry groups — semiconductors, hardware and software names,” reports CNBC.
The tech sector could even see more free cash on hand if Congress proceeds with plans to cut down capital gains on repatriated earnings or follow in President-elect Donald Trump’s proposed repatriation tax holiday policy that would encourage large multi-national companies to bring back hundreds of billions of dollars in cash to the U.S. for possible use in dividends, deals or other projects. Trump plans to levy a 10% repatriation tax on U.S. companies’ overseas profits from foreign subsidiaries, compared to the current 35% tax rate.
Looking at XLK’s chart, “Wald noted its recent breakout through five-year resistance, back to relative levels from 2002. Such a relative breakout suggests that technology, which just logged nine-straight weeks of gains, maintains its leadership throughout the course of this year, he said,” according to CNBC.
Year-to-date, investors have added almost $1.2 billion in new assets to XLK, good for one of the best totals among all sector ETFs.
Investors looking for tactical plays on chip stocks, a group that has been a key driver of tech sector upside this year, can consider the VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX).
For more information on the tech sector, visit our technology category.