The Technology Select Sector SPDR (NYSEArca: XLK), the largest technology exchange traded fund by assets, along with rival, traditional technology ETFs such as the Fidelity MSCI Information Technology Index ETF (NYSEArca: FTEC) and the Vanguard Information Technology ETF (NYSEArca: VGT) have felt some heat following the recent retreat in some big-name technology stocks.
Since these are cap-weighted technology ETFs, FTEC, VGT and XLK feature large weights to the likes of Apple Inc. (NASDAQ: AAPL), Facebook Inc. (NASDAQ: FB) and Google parent Alphabet Inc. (NASDAQ: GOOG), among other tech titans. That means weakness in those stocks can weigh heavily on these 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.
“Of course, the 51 tech ETFs in the universe aren’t all the same, but investors seem to treating the two biggest — the $16 billion Technology Select Sector SPDR (XLK) and the $13 billion Vanguard Information Technology (VGT) very differently. Year-to-date the Vanguard ETF has seen the largest inflows of more than $1 billion. Meanwhile, the SPDR ETF has seen nearly the largest outflows of some $129 million so far this year,” reports Crystal Kim for Barron’s.
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.
The industry continues to grow through innovation as more shift to cloud, progress into artificial intelligence and adopt internet of all things devices.
“To be sure the Vanguard ETF charges a slightly lower fee and has slightly better trailing performance over pretty much every period through June 19, but the real reason behind the flow disparity has more to do with the investors that use them. Vanguard investors have a reputation for sticking around in ETFs longer than average,” according to Barron’s.
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Tom Lydon’s clients own shares of Apple and Facebook.