The technology sector is the best-performing group in the S&P 500, a theme that is prompting investors to embrace exchange traded funds such as the Technology Select Sector SPDR (NYSEArca: XLK). XLK is the largest ETF dedicated to the S&P 500’s largest 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.
“Investors ranging from institutional accounts to retail clients plowed about $1 billion into tech stocks during the past week, pushing inflows to the highest annualized pace in 15 years, according to a Bank of America Merrill Lynch report. Overall, equities saw $8.9 billion in outflows during the period, the bank said,” reports Julie Verhage for Bloomberg.
The Nasdaq is leading the charge in breaking records, with technology stocks and related exchange traded funds pushing ever higher, and the growth segment won’t likely be letting up anytime soon.
The PowerShares QQQ (NasdaqGM: QQQ), which tracks the tech heavy Nasdaq-100, has, until recently, been hitting a series of record highs.
Technology companies are still sitting on cash hoards that can be deployed in ways to improve value with investors. We are already seeing an increase uptick in company share buybacks and tech firms are now even issuing dividends.
Meanwhile, the industry continues to grow through innovation as more shift to cloud, progress into artificial intelligence and adopt internet of all things devices.
“One reason for the inflows could be hedge funds returning to the tech sector. Regulatory filings show they were net sellers of a combined 7.5 million shares of Apple, Amazon.com and Alphabet Inc. in the first quarter. Those sitting on the sidelines have missed out on dramatic upside in 2017, with the five biggest American companies by value, which also include Facebook Inc. and Microsoft Corp., jumping an average of 26 percent this year,” according to Bloomberg.
Amazon.com Inc. (NASDAQ: AMZN) is not classified as a technology, but it is a member of the consumer discretionary sector.
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.
Tom Lydon’s clients own shares of Apple and QQQ.