The Technology Select Sector SPDR (NYSEArca: XLK), the largest tech ETF by assets, is off 5.5% over the past week. Those declines are prompting some investors to depart the benchmark tech ETF, but outflows from XLK and other ETFs tracking the sector may be short-lived.
XLK “has yet to see the kind of exodus you’d expect with the Nasdaq 100 Index tanking. The fund has had about $400 million of outflows since March 19, following the Facebook Inc. user data scandal, which knocked more than 7 percent off the Nasdaq 100 over the same time frame,” reports Bloomberg.
As of March 26th, XLK and the PowerShares QQQ (NasdaqGM: QQQ), which tracks the Nasdaq 100, had about $2 billion in new assets on a year-to-date basis.
Technology Still An Investor Favorite
While technology, the largest sector allocation in the S&P 500, has seen some recent struggles, many investors remain bullish on the sector.
After surging 37% last year, technology remains a favorite among investors, despite data suggesting technology stocks are relatively expensive as they trade at elevated price-to-earnings compared to the broader S&P 500. Roughly a third of global fund managers say they are overweight tech in their portfolios, according to a recent Bank of America Merrill Lynch survey.
Related: Two Tech Trends Shaping 2018
XLK includes companies from technology hardware, storage, and peripherals; software; diversified telecommunication services; communications equipment; semiconductors and semiconductor equipment; internet software and services; IT services; electronic equipment, instruments and components; and wireless telecommunication services.
“But not all tech funds are in the clear. The Nasdaq 100-tracking PowerShares QQQ Trust Series 1 fund, or QQQ, has had seven consecutive days of outflows totaling more than $3 billion, according to Bloomberg data.”
QQQ’s second-largest sector weight after tech is consumer discretionary, a group that is currently trading at lofty multiples relative to its long-term averages.
QQQ, one of the largest U.S. ETFs, has equal-weight equivalents equal-weight equivalents such as the Direxion NASDAQ-100 Equal Weighted Index Shares (NYSEArca: QQQE) and the First Trust NASDAQ-100 Equal Weighted Index Fund (NasdaqGS: QQEW).
For more information on the tech sector, visit our technology category.
Tom Lydon’s clients own shares of QQQ.