S&P 500 Plus a Dash of Tech Makes for an ETF With Explosive Gains

Google’s parent company Alphabet gave investors a gut punch with a 7.5 percent loss on Tuesday due to disappointing earnings, but that didn’t mean all tech investors were dry heaving losses. Exchange-traded fund (ETF) investors holding the Invesco S&P 500 Equal Weight Technology ETF (NYSEArca: RYT) ended the day with a 0.65 percent gain.

RYT is based on the S&P 500® Equal Weight Information Technology Index (Index). RYT will invest at least 90 percent of its total assets insecurities that comprise the Index, which equally weights stocks in the information technology sector of the S&P 500® Index.

Both the fund and the index are re-balanced quarterly. As for the equal weighting, the fund prevents overexposure to certain stocks that market-cap weighted funds can be subjected to–a boon when those particular holdings are experiencing upside, but a detriment when things go awry.

While it has tech giants as part of its holdings like Apple, RYT has equal doses of exposure to other companies like Nvidia, Paypal and Broadcom to name a few. One might think that underexposure to heavyweights like Apple might affect the performance of the fund, but RYT is up 21 percent year-to-date according to Morningstar performance numbers.

The tech sector, in particular, is certainly making its comeback after the fourth-quarter massacre it endured in 2018. Like all other equities, the sector has been getting some help from better-than-expected first-quarter GDP numbers published by the Commerce Department.

Despite a number of roadblocks heading into 2019 after a rough fourth-quarter market showing to end 2018, the U.S. economy rebounded in the first quarter this year, beating analysts’ expectations of 2.5 percent growth with a 3.2 percent growth number.

The GDP figure represents the strongest rate of growth for the first quarter in four years and matches the 3.2 percent growth experienced a year ago.

“The economic expansion will set new records for longevity in July and it looks like there is no stopping this economy,” said Chris Rupkey, chief financial economist at MUFG, in a note. “We had all but given up on the first quarter with the Federal government shutdown ending January 25, frigid winter weather conditions shutting down manufacturing production, and the fears of a world growth slowdown.”

“So far the fears are unfounded,” Rupkey said.

Like the four food groups, technology has almost become a dietary staple for investors’ portfolios. Exposure without some kind of tech exposure like RYT would be akin to avoiding protein, fats or carbohydrates during a meal.

“Tech can be a consumer staple,” said Loup Ventures managing partner Gene Munster during CNBC’s Trading Nation. “While there are fluctuations in the businesses like Clorox and Coca-Cola and businesses like the iPhone, I think the same underlying message is true. We cannot live without Apple. We cannot live without those other staples.”

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